Sunday Night Grain Outlook, 7-11-10

Sunday Night Grain Outlook
By Duane Lowry
Sunday, July 11, 2010

OPENING CALL:
Corn= 2-3 lower,     Wheat= 1-2 lower,     Soybeans= 4-7 lower.

Weather during the weekend was in line with expectations. Parts of the eastern Midwest desire more moisture and they are expected to receive it by the 6-10 day window. Some western areas that have experienced excessive moisture will receive unwelcomed rains, but further crop deterioration isn't likely. Parts of the Delta continue to miss rains and will remain dry through the next two weeks. Any temperature concerns in the US are likely to be of short duration. Overall US weather is likely to receive a bearish spin, amid ideas current price levels have factored in known concerns and may actually offer some improved aspects to the forecasts. China's forecasts suggest favorable conditions and beneficial rains during the next 10 days for key production areas. Global weather spin is likely to receive a bearish spin, as Europe also has improving aspects to its forecast.                      

News> BP is in the process of installing a new cap on the gulf well that will be able to capture 80,000 barrels per day, vs the old cap that could only handle 25,000. When this process is complete, hopefully late today, it is believed it will have the capacity to capture virtually all of the oil.  

Wheat will start lower on vulnerable technical conditions and expectations row-crop weather will be viewed as bearish. Inter-market spreads warn wheat may increasing selling interest from multiple sectors of the trade. Keep in mind that values added nearly 95 cents in just six trading sessions. The global balance sheets may have tightened from the extremely burdensome levels, but we still have an abundant overall supply outlook. Thus, current prices have discounted much of any fundamental merit that may have existed in support of recent gains and recent strength may have actually out-paced its foundational merit amid aggressive short-covering energy. We are poised for price weakness. Not sure how much, but to push values down 30 cents from Friday's finish at some point during the next several days is not an unreasonable possibility.                                 

Corn will start lower on the lack of a clearly definable bullish weather storyline that the public can embrace. Drier areas in the east do have moisture opportunities. Areas that have suffered yield loss potential from excessive moisture would prefer drier trends, but current weather conditions/forecasts are not adding further to woes. While I don't believe the trade has yet to fully understand the irreversible loss of production that has occurred, there is little appetite in the trade for such embrace at this time. Short-term technical conditions warn of downside vulnerability. Most traders will expect yield ideas to stabilize or improve during the next several days from the worst fears of last week. An improving Chinese weather forecast will add another level of bearishness to this week's trade. We are poised for corrective weakness. I am not sure how much to expect, but 20 cents of downside potential is not an unreasonable possibility during the next several days. While I don't share in the opinion, many will respond to any weakness and be quick to embrace the idea that the summer highs have been established. Producers need to respect that risk and not let the market's reward of recent gains slip by without taking some action. Longer-term, corn has a foundational footing that can easily sponsor higher price levels, but maybe not until the trade becomes more convinced of overall yield problems that lead to a national yield discussion of sub 160 bpa. Currently, the trade does not embrace this concept and the current forecasts suggest such a storyline isn't likely to be embraced any time this week.          

Soybeans will start lower on the improved theme to row-crop weather. Short-term technical indicators are vulnerable to weakness. Most in the trade really don't believe any of recent gains have merit, so I am not sure how much weakness we should expect during the next several days, but some/many will be viewing early week weakness as the market's beginning move towards reality that they perceive to suggest prices well below current levels. Right or wrong, this won't be the first market traders want to buy and for some it will be the first market they wish to sell. Expect weakness this week, but I am not sure how much should be expected. Here too, while I may believe soybeans have much greater upside potential during the next several weeks than most consider possible, producers that have a need/desire to make some catch-up sales may find merit in rewarding the market's recent gains.                                   

In summary, weather will receive a bearish spin from both US and global perspectives. Many traders do not at all agree with recent price gains as having merit and thus they will be quick to embrace weakness and suggest the summer highs have been scored. Short-term technical conditions express vulnerability to price weakness. It is very possible that the extent of downward pressure from current levels could be enough during the next several days to cause recent buyers serious remorse and challenges.           

This newsletter is prepared from information believed to be reliable. Early Market News, Inc. does not guarantee that such information is accurate or complete and it should not be relied upon as such. Opinions expressed are subject to change without notice.