Corn Market

Old crop: Weekly export sales come in near the low end of expectations but it was also announced that S. Korea bought 165K T. of US old crop corn. Yesterday the Ag Attaché in China suggests 8.0M T should reduce their old corn crop. This is leading traders to believe that China will be an importer sooner vs. later. This coincides with the Chinese announcement the other day that they would no longer export corn and halt further ethanol expansion. The flat price traded all over the place on Thursday before finishing basically unchanged in old crop. Cash markets in the interior are mostly steady while the Gulf market has a touch of firmness. It appears the old crop futures are seeing some liquidation as old crop lost on the spread to new crop. The short covering late suggests the specs do not want to give up the ship, meaning their ownership. We are also seeing some inter-market spreading, buying corn selling soybeans. I still remain highly suspect of the need to own old crop at current levels. Recent price action has created a smattering of resistance at the $5.85-$5.86 level in July. Closes below the $5.68 level will go far in suggesting that some sort of top may be in place. Thursday was an inside day of Wednesday. Recent longs will want to be very leery of an outside day on Friday with a lower close.         
 
New crop: December corn, too, saw some flat price liquidation on Thursday but honored suspected minor support levels. It was interesting to see that new crop corn led the rally back late in the day. New crop corn, too, had an inside day of Wednesday. When a market is on an extreme the day following an inside day that market has to be closed watched for signs of a reversal of the underlying trend. If this does occur a spec washout could easily ensue.  If this is to happen I still believe that new crop should gain on old crop. You have heard me tout it all week; based on acreage ideas new crop corn could be the new wheat market in the coming marketing year. Only time will tell. As much as I like new crop corn for the longer term, there is no need to chase this market at current levels. For the time being the only way I am long December corn right now is against short old crop corn.    

Wheat Market

Old crop: Weekly export sales were below expectations but still pretty stout based on USDA export projections. I should point out that of the 431.9K T. 400K T. was announced last week in a sale to Iraq. That means new sales over and above that were previously announced totaled just 31.9K T. There were a fair amount of previously announced sales that were cancelled.  I believe this is a function of the high price; meaning higher priced purchases were cancelled with the idea they could be replaced at a later time with lower prices.  This is not friendly for sustaining the current rally. Given the fact that Chgo has been the recent rally leader this suggests the specs are the driving force. Both KC and Mpls don’t have the liquidity to handle big fund participation.  It should be noted that the May Mpls market has now finished limit down 4 days in a row.         
 
New crop: July Chgo tests the low end of suspected resistance, sells off hard (50+ cents), but doesn’t stay down.  Most of the buying is fund related.  Many will say that since old crop wheat is so tight that a “weather premium” needs to be in the price structure of new crop wheat.  The flip-flopping motion of July wheat suggests this market is not done in its efforts to retrace the break of last week. Thursday’s price action alone suggests that this market wants to see what the $11.10 level looks like. I still think rallies have to be sold here on tests of these resistance levels.   

Soy Complex

Old crop: Weekly soybean sales were lower than expected. This is a sign that potential buyers are beginning to look to SA for a cheaper price. Palm oil continues to swoon and that spills over into the US bean oil market.  We have to remember that a good portion of the recent strength in soybean oil came from the palm market. Adding to this is the story that China has opened their vegetable oil reserves and are in the process of selling 500K -700K T of bean oil.  All of this worked in conjunction to slam the soy complex on Thursday. Soybean meal looks like it could lose $40 without much effort. Soybean oil is confirming the reversal from the other day is valid.  Cash markets don’t do much; if anything a bit softer. The next support levels for July soybeans are $14.40 followed by $14.00. It was just 3-4 days ago that July beans were challenging $16.00. Welcome to the wonderful world of grain trading! I have been touting the merits of long July short November beans recently. If we get the broad based sell-off I have been fishing for this spread will decline with the sell-off. I have been touting $1.05 for this spread.  If we get goofy it can get down to 90-85 cents. So save some bullets and be ready to scale into this spread in case things get “stupid”.  We saw it get “stupid” in wheat.  In the wonderful world of commodities it can get “stupid” anytime, anyplace.  
 
New crop: November soybeans get hit along with the old crop. The liquidation up front, however, allows the new crop to gain on the old crop. I think this is just a function of the broad based liquidation. Broad based liquidation usually hits the nearby contracts the hardest as that is where most “trading” funds participate. The next decent looking support level for November soybeans is down around $13.10-$13.00 level. After that we look at something down towards the $12.70-$12.60 level. Despite the break in old crop, new crop still looks weaker. The price action is suggesting we have the needed acres for the upcoming season. Good looking resistance is now down to $14.00-$14.10. The broad double top in new crop meal looks like it is headed for $270.00. New crop bean oil, not to be left out, looks like it could break anywhere from 650-900 points before realizing any legitimate looking support.

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