Corn

The USDA Supply/Demand Report this morning was considered supportive against expectations given a lower ending stocks estimate but production and yield estimates came in higher than expected. The market is called 3-5 higher on the open. Average yield was pegged at 165 bushels per acre as compared with 163.5 last month and this pushed corn production up to 13.365 billion bushels, up 120 million from last month and up about 90 million from expectations. The USDA pegged the 2009/10 corn ending stocks at 1.426 billion bushels which was about 45 million below expectations. As a result of lower beginning stocks and a jump of 100 million bushels in the export forecast, 2010/11 ending stocks are now pegged at just 1.312 billion bushels from 1.373 billion last month and 1.573 billion the previous month. This is a stocks/usage number of 9.7% which has been under 10% just two other times since 1973. World corn ending stocks were revised down by about 2 million tonnes from last month to 139.2 million tonnes. China production was left unchanged at 166 million tonnes. Of more concern could be the revision down in world coarse grain ending stocks to 172 million tonnes from 180 million last month, 187 million last year and 193.8 million two years ago. This opens the door for a revision higher in corn exports ahead as the US makes up for losses in the FSU region. Production in this region was revised down by 9.6 million tonnes.

PRICE OUTLOOK: Ending stocks are already tight and traders see the weather since August 1st as a reason to suspect that this may be the high yield estimate of the year. With the possibility of higher exports and lower production ahead, look for the uptrend to continue. With high wheat and soybean prices, look for December 2011 corn to also see a solid uptrend ahead. Look for solid support for December corn near 409 with 451 1/2 and 493 as upside objectives. Use 492 as upside objective for Dec11 corn. 

Wheat

The USDA’s supply and demand and Crop Production reports were considered bullish this morning with the opening call 10-15 cents higher in wheat. US production was raised above trade expectations with the all-wheat total at 2.265 billion bushels versus 2.216 billion on the July report. Expectations were for a rise of about 15 million bushels. However, exports were raised by 200 million bushels to 1.2 billion which resulted in a drop of 141 million bushels in 2010/11 US ending stocks to 952 million. This was about 10 million bushels below expectations. The overall US wheat yield was raised by a substantial 1 bushel per acre to 46.9 bushels per acre. Hard winter and hard spring wheat ending stocks saw substantial reductions, but soft red winter (Chicago) wheat stocks were raised to 179 million bushels from 162 million in July. On the world report, all eyes were on the Russian wheat number, and the USDA lowered its estimate by a larger than expected 8 million tonnes to 45.0 million. This compares to 53.0 million in July, 61.7 million last year and 63.7 million two years ago (2008/09). Kazakhstan was lowered to 11.5 million from 14.0 in July and Ukraine was lowered to 17.0 million from 20.0 million in July. In all, the producers of the former Soviet were lowered by nearly 13 1/2 million tonnes. The EU was lowered to 137.51 million from 141.82 in July. This resulted in an overall drop in world production to 645.73 million tonnes, from 661.07 last month. World ending stocks were lowered to 174.76 from 187.05 million last month.

PRICE OUTLOOK: World ending stocks and production numbers came in about as expected but traders expect further revisions lower next month and there are already concerns for winter wheat plantings in Russia. Look for importers to continue an aggressive buying program as well which should bring a test of at least 790 and maybe 808 for December wheat. Support is near 741 and 711.

Soybeans

The USDA Supply/Demand Report this morning was considered negative against expectations as the USDA boosted production more than expected. The market is called 3-5 higher. A yield of 44 bushels per acre as compared with 42.9 last month helped push soybean production to 3.433 billion bushels, about 75 million above trade expectations. A boost in demand due to strong China imports helped keep the ending stocks news just slightly negative as exports for the coming year were adjusted to 1.435 billion bushels, up 65 million from last month. Old crop ending stocks were pegged at 160 million bushels which was about as expected and ending stocks for the 2010/11 season were pegged at 360 million bushels which was unchanged from last month and about 40 million bushels above trade expectations. World ending stocks for the 2010/11 season are pegged at 64.7 million tonnes, down about 3 million from last months estimate but still up from 63.5 million last year and 43.9 million two years ago. This is a record high. Beginning stocks were lower and production was higher but demand was revised higher by more than 3 million tonnes. The demand numbers are strong and traders will question the high yield forecast given hot weather so far in August.

PRICE OUTLOOK: The report was considered slightly negative against expectations but the market is called higher due to wheat and corn numbers. November soybean resistance begins at 1027 and 1031 with support at 1005. Use 1062 as next upside objective.

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NEAR-TERM MARKET FUNDAMENTALS: Several factors suggest that the soybean market could struggle to add much more premium over the short-term including a less threatening weather outlook, news of a slowdown in unloading grain shipments in China and news of a much larger than expected net long position from fund traders in the COT reports. At the port in Dalian China an explosion at an oil pipeline has caused the closing of 80-90% of the shipping berths including iron ore and Agricultural imports. South Korea is tendering to buy 25,000 tonnes of non-GMO soybeans. Argentina crush in May jumped to 4 million tonnes, up 11% from last year. The market continues to find support from fears of stressful weather during the sensitive pod-setting period for US soybeans in early August. Traders are also concerned with the potential sharp drop in production of higher oil-yielding crops in Canada and Europe and from concerns for the sunseed crops in Russia. November soybeans posted a new high for the move early on Friday only to close lower on the session. The market ran out of buyers on the early advance and November soybeans pushed lower on the day before firming into the close. This came amid firmer bids for cash soybeans at the Gulf which traders said was in response to strong demand. While China is still a strong importer, spot basis levels in the US fell 10-15 cents in many locations due to increased producer selling. Evening up ahead of the weekend was considered a major feature on the day with some light to moderate activity in the old crop/new crop soybean spreads with old crop gaining on new crop on the day. Some forecasts call for hot and dry weather to last through the end of July and into early August, which was considered supportive on a day marked by profit taking. The weather forecast to start this week is far less of a concern for the soybean crop as the crop can do well in a hot and wet environment as compared with concerns for a hot and dry week ahead. The northern Corn Belt cools down for a few days and then temperatures jump back to the mid-90′s later this week. The ridge moves across the country in the next few weeks but there appears to be plenty of rains for the delta and southern half of the Corn Belt to see the potential for improving crop conditions ahead. Traders see a 1-2% decline in crop ratings tonight. The Commitments of Traders Futures and Options report as of July 13th for Soybeans showed Non-Commercial traders were net long 59,789 contracts, an increase of 58,094 contracts. Commodity Index traders held a net long position of 175,212 contracts, an increase of 5,932 contracts for the week. For meal, Non-Commercial traders were net long 60,185 contracts, an increase of 12,212 for the week. The Nonreportable traders were net long 15,102 contracts, an increase of 2,997 contracts for the week and this pushed the Non-Commercial and Nonreportable combined traders net long position to 75,287 contracts, up 15,209 contracts for the week. For Soybean Oil, Non-Commercial traders were net short 18,108 contracts, a decrease of 18,174 contracts for the week. The Nonreportable traders were net long 263 contracts, an increase of 7,367 contracts on the week. Commodity Index traders held a net long position of 104,171 contracts. This represents a decrease of 2,077 contracts in the net long position held by these traders.

TODAY’S GUIDANCE: A much wetter forecast for the drier areas of the US along with the COT report which showed aggressive buying and a hefty net long position from fund traders are forces which could pressure the soybean market over the near-term. Farmer selling is on the rise and prices are favorable and unless the rains in the forecast for the coming week do not materialize, the market may be close to a near-term peak. Some traders think there is too much rain in the forecast but crop conditions are likely to improve this week and next week if the weather comes in as expected to start this week.

TODAY’S MARKET IDEAS: Trend-following fund traders were aggressive net buyers of 57,660 contracts for the week to shift to a net long position of 34,057 contracts which is higher than expected. Selling resistance for November soybeans comes in at 986 1/2 with key resistance at 993 3/4. Look for set-back to at least 955 early this week. December oil support is back at 38.40. December meal looks vulnerable to a set-back to near 278.60 with selling resistance today at 289.20.

US Initial Jobless claims came in higher than anticipated, increasing by +25,000 to 471,000.  The sudden increase to new 6-week highs erases recent optimism and breaks the downtrend pattern.  The continuing claims component came in slightly higher then expectations to 4.625 mln and below last week’s levels.  The treasury market lurched higher on the report and sent June bonds above 124-00, while the S&P 500 broke down to new lows on the day.  Signs of an improving labor market would take place on a break in weekly claims below 400,000.

Soybeans

The USDA reports this morning were considered bearish with the market called 8-12 cents lower on the opening. Quarterly stocks as of March 1st came in at 1.27 billion bushels which was about 65 million bushels more than traders expected. Soybean planting intentions came in at 78.098 million acres as compared with 78.5 million expected and 77.5 million last year. While the plantings number was slightly below expectations, the hefty stocks number eases traders fears of tightening ending stocks for old crop. This also means that beginning stocks will be about 60 million bushels above trade expectations.

PRICE OUTLOOK: Traders see the stocks number as bearish as this will boost both old crop and new crop ending stocks estimates for upcoming supply/demand reports and we could also see adjustments higher in world ending stocks which are already at the second highest in history. November soybean resistance comes in at 930 3/4 with 895 as initial downside objective and then 880 1/4.

Corn

The USDA planted acreage and March 1st stocks reports were considered bearish with the market called 3-5 lower on the opening. Planting intentions came in a bit below expectations at 88.798 million acres as compared with trade estimates near 89.2 million and 86.5 million last year. However, the need for the extra acres may come into question with the bearish grain stocks numbers. Stocks came in at 7.694 billion bushels which was near 200 million bushels above trade expectations and a whopping 740 million bushels above last year. The stocks number should lead to a sharp revision higher in old crop ending stocks in the next supply/demand which means a higher beginning stocks number for the 2010/11 season.

PRICE OUTLOOK: The report is clearly bearish with resistance for December corn now at 385 with 370 3/4 as initial downside objective. July corn looks set for a further break to 356.

Wheat

Today’s USDA reports were considered negative across the grain complex. In wheat, acreage was higher than expected, but quarterly stocks came in slightly below trade expectations. Traders are looking for the wheat market to open 2-4 cents lower. The USDA pegged all-wheat acreage at 53.8 million, about 500,000 acres above the average trade estimate. Last year’s planted area for all-wheat was 59.133 million acres. Spring wheat area was pegged at 13.9 million acres this morning, about 500,000 above trade expectations. Winter wheat was also bumped to slightly above trade expectations at 37.7 million. Stocks as of March 1st were 1.352 billion bushels in wheat, about 15 million below trade expectations. This compares to stocks of 1.040 on March 1st, 2009.

PRICE OUTLOOK: The overall negative tone of the reports could pull May wheat back down to new contract lows. If so, this would mark the fifth day in a row that May wheat has made new lows. The question then may be whether trend-following funds will add to their near-record large net short position at these price levels, or whether they will be more interested in covering shorts on weakness.

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An improved global macro economic outlook and a slightly weaker US Dollar appear to have given the copper bulls the initial edge today. With the Chinese on an extended holiday and the copper trade seeing a very minor labor orientated supply side threat overnight, it is clear that the bull camp has more ammunition than the bear camp. However, the copper market did see some negative supply side news late last week and with the weakness see at times in the US equity markets last Friday, the macro economic optimism today seems somewhat surreal. However, seeing the Greece debt situation put under control for 30 days seems to have given the bull camp an added measure of confidence. In fact, seeing some very impressive earnings news from Barclays overnight has clearly added to the macro economic bullishness and if the scheduled US numbers can add to the bullish look on the economy, there might be little to prevent the March copper market from rising back above the even number $3.20 level. The Commitments of Traders Futures and Options report as of February 9th showed the Non-Commercial and Non-reportable combined position to be net long 11,897 contracts, which was a reduction of the net long by 6,594 contracts from the previous report. Therefore the copper market shouldn’t be held back by an overbought technical condition today.

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DOLLAR: Not surprisingly the Dollar is catching a distinct flight to quality bid this morning. In addition to ideas that global equity prices were ahead of reality, the market seems to have seen a downshift in economic readings, with the US retail sales report and Michigan sentiment readings late last week being joined by a slack UK private housing report and lackluster attitudes toward the Chinese recovery in the overnight headlines. Apparently the currency markets are uninterested in suggestions from Japan that they are poised to climb out of the recession in the next quarter. In fact, with the UK and now the US, seemingly adding slightly to their quantitative easing efforts, the markets are suspecting that the slow down threat remains in place. With a large US financial institution failing over the weekend and the failure apparently the biggest of the year, that clearly rekindles financial market flight to quality interest in the Dollar. With the August 11th Commitment of Traders with Options report for US Dollar showing the Non-commercial position to be net short 10,110 contracts, with the Non-reportable position net short 1,693 contracts, that made the “combined” spec and fund position net short 11,803 contracts as of early last week. Therefore the September Dollar looks to be poised to rise to the late July highs of 79.81, but we doubt that the Dollar is going to completely throw off the downward bias that has been in place since early March.

EURO: The Euro is clearly under a liquidation watch, as the markets have once again rekindled concerns for the recovery. We would suggest that weakness in equities at the end of last week and into the opening this morning, were the result of ideas that the equity markets were ahead of reality and to see equity prices fall consistently throughout this week, might require fears of a failed recovery effort. However, in the near term slumping sentiment looks to apply pressure to the Euro and that could easily send the September Euro down to the first consolidation support zone of 140.00 on the charts. With the August 11th Commitment of Traders with Options report for Euro showing the Non-commercial position to be net long 17,551 contracts, with the Non-reportable position net long 18,905 contracts, that made the “combined” spec and fund position net long 36,456 contracts as of early last week. Therefore from a technical basis, the Euro would seem to retain at least a couple more days of long liquidations selling pressure.

YEN: The yen clearly seems to be a currency in vogue, with strength being seen in the Yen recently in the face of strength in equities and the currency also being bid higher in the face of slumping equities. Clearly the Yen is garnering some flight to quality type buying and that in combination with mostly upbeat macro economic views toward the Japanese economy looks to give the Yen an additional flight to quality benefit. Near term upside targeting in the Yen is seen at 106.41 and perhaps even higher if the anxiety being thrown off by the equity markets intensifies.

SWISS: A big range down extension in the Swiss clearly suggests that the Swiss, Euro, Pound and Canadian are all set to lose in the face of an economic letdown in world equity markets. While the Swiss looks to follow the lead of the Dollar and the Euro in the coming trading sessions, we would be surprised if the September Swiss didn’t fall quickly back to the 92.00 level in the coming trading sessions.

POUND: In addition to deteriorating macro economic views, the Pound also seems to be getting pressure from news of a privately generated housing survey. With the Pound into the August highs, technically and fundamentally overbought, that seems to set the stage for a slide to at least 162.63. In order to see a full washout in the September Pound, down to the 160.00 level, probably requires extensive liquidation carnage in global equity markets!

CANADIAN DOLLAR: Since the Canadian has already seen an aggressive liquidation washout to the even number 90.00 level this morning, a good measure of the macro economic disappointment is probably already factored into prices. However, it would appear as if the negative outlook toward the global recovery, is still destined to play out over the coming trading sessions and that could put the September Canadian down to the 89.31 level in the coming two trading sessions.

TODAY’S MARKET IDEAS: Expect the Yen and Dollar to extend overnight gains for at least the first two trading sessions of the new week.

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CRUDE OIL MARKET FUNDAMENTALS: Crude oil has extended gains in the overnight trade finding price support from outside market influences, but also from a more optimistic demand view. A bounce back in equities overnight is certainly feeding into the macro economic recovery theme which has lifted June crude oil to the highest price level since early January. Hope that economic conditions are improving has enabled the oil market to push aside its clearly bearish fundamental setup and instead focus on the longer-term prospects for a recovery in oil demand. In fact, a more positive oil demand view is being fostered by news that China’s oil imports in April rose to a near record daily rate. Crude oil prices are also being supported by the IEA chief saying the agency does not plan to lower oil demand in its forecast to be released on Thursday. Part of the gains in oil seem to be on expectations that today’s EIA short-term energy forecast will have a less pessimistic outlook. The weak action in the Dollar also seems to be boosting the appeal of oil as an inflation hedge with sidelined investors now starting to flow back into oil on ideas that energy markets will be quick to respond to any macro economic improvements. With the market focused on the macro economic picture and seemingly little concerned over predictions for another sizable jump in oil stocks in this week’s inventory report suggest bullish sentiment in oil is becoming entrenched. While today’s EIA report could add to volatility this session, the market’s bullish bias suggest price dips off the EIA news may be short lived and attract new buyers. But we still suspect the key to higher oil prices will largely depend on seeing more equity market gains. If equities trade higher, then the bullish technical setup in June crude oil is likely to lift the market into a higher $62.57 to $65.00 price range.

PRODUCT MARKET FUNDAMENTALS: GASOLINE: June gasoline has seen a choppy two sided trade overnight as the market seems to be running into some technical overhead resistance near the $1.71 price level. But the market is also finding support from a refinery problem in Texas and from positive outside market influences. Today’s US trade data is likely to offer more insight on the economy and if it supports the market’s view that economic conditions are showing signs of improvement, it could be enough to push June gasoline to a new high for the move. Another stumbling block for the bull camp may be the EIA’s oil demand report. But given the market’s bullish bias and buying interest coming in on yesterday’s price dip suggest any setback off the EIA or trade news may be short lived.

HEATING OIL: Outside market strength is keeping June heating oil well supported and in a good technical position to take out the March highs. However, with the trade expecting another jump in distillate stocks, today’s US trade news and EIA demand report may need to come out positive to lift June heating oil above key resistance at the $1.5364 price level. A rally above the March high would then put the market on track for a move back to $1.60. The fundamentals are bearish for heating oil, but like crude oil, this market has the potential to trade higher if equity market gains continue to feed bullish oil demand sentiment.

TODAY’S ENERGY MARKET GUIDANCE: The bull camp has the early edge mostly due to the firmer equity markets and a weaker Dollar. But price action could turn volatile and the bull camp’s resolve may be challenged by today’s trade data and EIA oil forecast report.

CORN:

Net weekly export sales for corn, came in at 1,107,700 metric tonnes for the current marketing year and 200 for the next marketing year for a total of 1,107,900.

As of January 22, cumulative corn sales stand at 53.3% of the USDA forecast for 2008/2009 (current) marketing year versus a 5 year average of 60.1%. Sales of 654,000 metric tonnes are needed each week to reach the USDA forecast.

WHEAT:

Net weekly export sales for wheat, came in at 23,500 metric tonnes for the current marketing year and -80,000 for the next marketing year for a total of -56,500.

As of January 22, cumulative wheat sales stand at 82.1% of the USDA forecast for 2008/2009 (current) marketing year versus a 5 year average of 80.1%. Sales of 264,000 metric tonnes are needed each week to reach the USDA forecast.

SOY COMPLEX:

Net weekly export sales for soybeans came in at 526,100 metric tonnes for the current marketing year and 6,100 for the next marketing year for a total of 532,200.

As of January 22, cumulative soybean sales stand at 80.5% of the USDA forecast for 2008/2009 (current) marketing year versus a 5 year average of 77.1%. Sales of 184,000 metric tonnes are needed each week to reach the USDA forecast.

Net meal sales came in at 201,700 metric tonnes for the current marketing year and none for the next marketing year for a total of 201,700.

Cumulative soybean meal sales stand at 47.4% of the USDA forecast for 2008/2009 (current) marketing year versus a 5 year average of 52.7%. Sales of 112,000 metric tonnes are needed each week to reach the USDA forecast.

Net oil sales came in at 21,500 metric tonnes for the current marketing year and none for the next marketing year for a total of 21,500.

Cumulative soybean oil sales stand at 32.5% of the USDA forecast for 2008/2009 (current) marketing year versus a 5 year average of 61.0%. Sales of 15,000 metric tonnes are needed each week to reach the USDA forecast.

COTTON:

Net weekly export sales for cotton, came in at 107,200 running bales for the current marketing year and 6,600 for the next marketing year for a total of 113,800.

As of January 22, cumulative cotton sales stand at 76.9% of the USDA forecast for 2008/2009 (current) marketing year versus a 5 year average of 66.6%. Sales of 95,000 running bales are needed each week to reach the USDA forecast.

BEEF:

Weekly US beef export sales for the week ending January 22 came in at 7,800 metric tonnes making it 74,100 metric tonnes for the year. This compares to year ago weekly sales of 30,100 metric tonnes and 109,800 for the year. Before Mad Cow (2003) cumulative sales as of this week were 139,500 metric tonnes.

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