Morning Comments - Expect the unexpected
Jun 16, 2014
Prices opened the evening session a touch to the soft side but quickly turn higher from there. I suspect a combination of a very oversold market along with uneasiness about the civil war in Iraq and renewed tension between Ukraine and Russia all worked together to provide us with this little boost. This is one of the realities of dealing with world markets in that issues or maybe better stated those dreaded "black swan" events may erupt and for those that fail to heed the caution, it can be a painful experience.
Beyond this news though, there would appear to be little supportive for the wheat market currently. There have been minor concerns voiced about a delayed monsoon season in India but ample time remains for rains to fall there. Conditions throughout North America, Europe and into Russia remain excellent. Crop rating for spring wheat should improve in this afternoons report with 70 to 75% of the crop expected to be in the good/excellent category. Quite a sharp departure from winter wheat conditions this year.
Although this may sound minor, July wheat poked fractionally through Friday’s high overnight, which is the only the second time we have been able to post consecutive higher highs since prices turned lower in early May. While not enough to call for a reversal, these are the kinds of little signs to watch for when a market is approaching a low. I continue to believe we have potential to reach down to gap targets between 5.67 and 5.62 between now and the end of this month. If correct, that would mean the break is more than 80% complete.
The corn market has struggled to maintain a positive stance this morning but considering we were able to post and hold minor gains this past Friday, just holding stable is a minor victory. Looking ahead it would appear that we have ample amount of rain in the forecast for the eastern Corn Belt and to the west an overabundance. You can have too much of a good thing. Coinciding with this is are warming temperature so overall, it looks quite conclusive to crop development and there seem to be more and more discussion of above trend line crops. I have spoken with people recently that believe that if we continue with current development pace, central IL will be posting some corn yields over the 300 bu mark. It is a long time until harvest but if there were to be a year with that kind of potential, this would seem to be the one.
Managed funds continue to liquidate long positions and if we make it through the 4th of July without a major weather issue, I suspect they will have moved the short side of the ledger. The expectations for the weekly rating this afternoon call for unchanged to possibly a 1% improvement in the good/excellent category. Last week we stood at 74%.
It would appear that the rolling forward of July longs in the bean market is done at least for now as bull spreads are working again this morning. The Goldman roll should be complete but part of the front end buying could be in anticipation of the crush numbers to be released later this morning. The trade is expecting to see a number in the 125/127 million bushel range compared with the April crush of 123.5. Crushers have the inventory of beans and continue to operate in the black so will continue to squeeze every bushel they can. Of course the declining world DDG market is pressing meal, which ultimately could change the profitability if it continues. Managed funds continued to liquate longs last week.
While the front end of the bean market appears to have finally broken down, November futures remain in a holding pattern and could continue to do so until we reach the end of the month and the quarterly reports. If they do not receive a real shot of bullish adrenaline at that time, it is difficult to imagine that the 12.00 level will be able to hold for long.