Sunday Night Grain Outlook, 8-22-10
Sunday Night Grain Outlook
By Duane Lowry
Sunday, August 22, 2010
OPENING CALL:
Corn= steady-easier, Wheat= steady-easier, Soybeans= steady-easier.
Weather provided beneficial crop finishing rains for drier portions of the eastern/southern Midwest. The two-week outlook has a generally dry theme, but most areas have now reached the point where crops are far enough along that the crop is what it is. It is August 22nd and most Midwest soil moisture profiles can finish the crop. It is too late to be discussing weather from a concerning point of view. That doesn't mean that some won't, but it means it shouldn't be embraced. Expect some to offer a bullish slant to Midwest weather. Russia/FSU wheat areas are seeing improving moisture and forecasts suggest this will continue, easing fall wheat seeding concerns.
News> Weekend newswires discuss the likely slowing economic growth in China during the next few years, possibly negatively impacting overall commodity trends. China real estate looms as a threat to the banking industry and the key to economic weakening. Fed's Bernanke will speak at the Fed's annual Jackson Hole Conference on Friday. Overall economic news and sentiment is slipping and can be seen in the tenor of the newswires. The New York Times posted an article that discussed small investors fleeing the stock market, withdrawing $33 bil from stock mutual funds during the first 7 months of this year. This would be the fastest pace drawdown since the 1980s. When viewed from the perspective of what would be a normal inflow of money into stocks, the current trend represents a signif
Wheat will likely see trade on both sides tonight, maybe initially weaker on expected knee-jerk reactions in the row-crops to Pro Farmer's national production estimates. Some will point to improving moisture prospects in Russia/FSU and diminishing fears about fall wheat seeding. Others will point to slow arrivals of this expected improving moisture trends. Short-term technical indicators are mixed signals, but lean towards expecting selling interest to build on minor strength. Overall fundamental/technical conditions seem to argue for further price erosion during the next several weeks.
Corn will find traders expecting some initial weakness on weekend rains in the eastern/southern Midwest and reactions to a larger national production estimate from Pro Farmer than expected because of daily tour comments. However, it has been relatively common for the final national yield projection to seem disconnected from daily tour rhetoric. And it is also common for Pro Farmer to underestimate final USDA yield projections. Short-term technical indicators offer mixed signals. Trader sentiment will remain near universally bullish and still expecting a probe above recent highs probably sometime early this week and maybe tonight. Traders also expect Monday afternoon crop ratings to show a decline. Bullish trader sentiment is based on two main factors: 1) USDA's last yield estimate of 165 is too high, and 2) USDA's demand projections are too low by 200-350 mil bushels due to export increases as a fallout of the Russian crop declines. Personally, I believe the final US corn production can be higher than 165 and I believe US corn export optimism is unlikely to materialize. Technical conditions warn of vulnerability, which suggests that any probe of recent highs may prove unsustainable as the week evolves. Look for selling opportunities.
Soybeans will start lower in reaction to a surprisingly high Pro Farmer national yield estimate. If strength in corn materializes tonight/tomorrow, soybeans may reject early week bearishness since we are already more than 40 cents off last week's highs. Short-term technical indicators may allow for some minor price recovery, but selling interest should build above the market and limit any rally potential. Overall fundamental conditions have been and remain bearish. Technical conditions have rolled over to favor a bearish stance. Trader sentiment has been unwilling to be short soybeans despite all this and as long as corn is perceived as being bullish, traders will continue to shun any temptation to be bearish soybeans. Yet, this does not prevent downside energy from unfolding, as proven by last week's price action. Weekend rains offer very beneficial crop-finishing moisture to parts of the southern and eastern Midwest. Harvest is rapidly approaching. Downside potential during the next few months remains very significant.
In summary, there will be some knee-jerk bearish reactions to the Pro Farmer national production estimates. However, corn bulls will be largely unfazed and will remain committed to the bull side until harvest data forces them to reassess or technical conditions falter and they begin to see equity drawdown that require them to reassess. Search any me-too soybean attempts to recovery part of last week's price declines for selling opportunities and be concerned about downside potential during the next few months. While I don't see weather as bullish and I believe we are too far down the calendar road with mostly acceptable soil moisture profiles to finish the 2010 crop, some/many will still want to talk weather and those folks will point to the dry theme of the next two weeks as being a concern. So, all markets can certainly see some attempt at upside probing tonight/tomorrow, but I want to search that strength for selling opportunities, especially in soybeans. Corn is walking a fine line between a confirmed bullish storyline and an overly-hyped bullish tone based on yield and demand possibilities that ultimately fail to materialize. Also, whether it is immediately a factor or not I don't know, but overall economic conditions are concerning and may point to deflationary forces/concerns unfolding in the months to come. If true, this is not supportive to commodities in general and current values of most commodities are inflated because of inflationary expectations that have been propping up speculative commodity investments for months. It feels to me as if we won't need too many more deflationary signs to begin liquidation trends in many commodities, which if true, isn't bullish the grain trade. Bulls have one hope that all their potential rests and that is corn, which as I have said is a fine line and not a certainty.
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.
