The Hueber Report
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Morning Comments - Everyone is beginning to think the same way, which is always dangerous
Jun 18, 2014
The Chicago wheat market pressed into lower lows again during the session yesterday, which came as a surprise to no one but this time prices were able to bounce back for fractionally higher close. Prices have been solidly higher then in the overnight trade. By no means does this confirm some kind of reversal signal but as I commented yesterday, we are beginning to see signs that we are exhausting the swing lower and could move into more of a base building pattern through the end of the month.
There is really little I see in the news that would provide bulls with anything encouraging at this time. Weather conditions through the majority of North America and Europe continue to be conducive for crop development and additional moisture appears to be in the picture for the areas in Russia where concerns had previously existed. There is a growing concern that the wet conditions in some areas in the west and Northern Plains states are doing more harm than good but I would not say that has stimulated any buying just yet.
Word from Ukraine is that harvest of winter crops has begun, which is earlier than last year because of very favorable weather and early yields have also been better than last year. The Ukrainian Agrarian Federation has previously stated that they expected the overall grain production would fall short around 3 MMT from last year due to reduced use of fertilizers, but the early yields have not backed that up just yet. Of course, this would more likely show up in spring planted crops were that to be the case. Also, we now have many weather services backing away from the predictions of a major El Nino event, which should bode well for the weather outlook in Australia. It is interesting to note that just a few months ago the media and some market participants were getting all frothy about an impending El Nino even though there is no reliable correlation between such an event and problems in Northern Hemisphere crops.
In light of all this news, the question would seem to be, why would we find a bottom anytime soon in the wheat market? The possible answer to that is because this is a futures market that is always anticipating news and at this point, we have factored much of this into the price level. By no means would I be advocating any ideas of a major trend reversal, but I believe we are reaching very close to downside targets and the time of year when you look for seasonal lows so a corrective rebound could be in order after this month.
July corn reached into another lower low yesterday as did December futures, but only fractionally there and both closed lower again. Considering we appear to face no real threat to crops just about anywhere in the Northern Hemisphere, that would appear quite reasonable. Prices have tried to rebound again overnight and seeing that we sit on top of key support ranges for the year and in a very oversold position we should be close to a corrective low but by no means would I expect the see a rapid reversal. At least not one that could last for more than a couple days for the time being.
Generally speaking, lower prices should begin to stimulate demand but with the overall good growing conditions buyers would appear to be the in drivers seat and export interest looks routine at best. We will see the weekly EIA ethanol numbers later this morning and should reflect continued solid production in the 270 to 275 million-gallon range but here as well, that has come to be expected.
It would appear that right now the best hope for corn, and I hate to use that word when talking about markets, is that we will have exhausted the selling between now and the June 30th reports and set up for a corrective rebound. We seems to be approaching that psychological level where no one believes that can happen, which is of course what you want. Many things have changed in the markets over the years but one thing has not and that is human nature. As such, contrary opinion still matters. As with the wheat market, I will not be looking for major long-term reversals and advances but I do not believe now is the time to throw in the towel.
We should begin seeing additional estimates for the grain stocks and acreage report by the end of this week and I read more and more commentary that is predicting substantially higher than trend line yields. Granted, we will not have an "official" yield and supply/demand report until July 11th but I suspect that by the end of this month the psychology will be sufficiently bearish enough to be on the lookout for a corrective advance.
Fund long liquidation continued in the bean market again yesterday with nearby futures reaching down to complete a 50% retracement of the entire January through May advance and down to the lowest point traded since late March. November futures pressed right down against very key support just above 12.00 but once again, we have bent this contract quite hard but have been unable to break it, at least yet.
This continues to be a real frustration for the bear as we are looking at a record large acreage number this year, which should be ratcheted up on the 30th and by all accounts, great spring planting and early crop development. All that said, the market recognizes that the bean crop is made, or not, in August and the bulls appear unwilling to surrender this early. One thing that could throw a caveat into that rationale would be a sizable adjustment upward in the stocks report and while that would seem reasonable to expect, it is by no means assured.
As always with the current situation, export sales will be interesting in the morning but I have to think that unless that numbers reflects something quite negative that we should be very close to completing this initial wave lower in the bean market. While I believe the overall top is in place, we continue to face a very tight balance sheet and until we move closer to the time that we have additional inventory of beans available to the market, we cannot afford to stimulate any additional demand. As such, we should be nearing the point were a corrective rebound is in order.