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Morning Comments - Slipping and Sliding into June 30th
Jun 17, 2014
The early strength in wheat yesterday turned out to be rather short-lived and we pressed into lower lows for this swing once again. Defensive world markets are leading the charge lower as the Northern Hemisphere is preparing for the new harvest and anticipating solid production overall.
Harvest in the U.S. Southern Plains progresses albeit slowly with disappointing yields but that really comes as no surprise. Harvest is estimated to be 16% complete. As expected the ratings for the spring wheat did improve a touch with the good/excellent category up 1% to 72%. Note that Minnesota and South Dakota did see decreases with the good/excellent category slipping 6% and 3% respectively due to the excessive moisture they have seen.
Export inspections did not provide any assistance for the bull yesterday either coming in at 14.6 million bushels. This brings the total for this very young marketing year up to 27.61 million bushels, slightly below the pace a year ago of 41.8 million.
Futures have tried to stabilize again overnight but other than the recognition that we sit in a very oversold position, there would appear to be little threat to stimulate a rally. Funds are now short and I continue to look for nearby futures to head down for the gap objectives at the 5.67/5.62 level and ideally we will gap lower one last time to each that zone.
I do not know if I should say wheat is dragging corn lower or if corn is dragging wheat lower but regardless, the two are feeding off of each other as we press into lower lows for the season. It is not that corn is seeing any news that would stimulate buying interest. There has been some excessive rains passing through the upper Midwest but overall conditions remain ideal and crop rating improved a touch again on the weekly reports. 76% of the crop now sits in the good/excellent category, up 1%, which I understand is the best rating for this time of the year in 20 years. While we all know that the critical pollination period for the heart of the belt is in front of us but current forecasts of warming temperatures and consistent waves of moisture passing through give the bull little to hang their hopes on.
Export inspections slipped a couple million bushels coming through at 43.4 million. This brings the marketing year to date tally up to 1.415 billion bushels and was basically right on the 44 million bushel pace we need to reach the 1.9 billion bushel target.
With managed funds still long over 140,000 contracts and a rapidly approaching pollination period with little threat in sight, it would appear this market continues to hold more than enough downside potential. That said, I would like to think that short-term at least, we are near a reaction low. On the July chart we should find support between current levels and 4.34 but on the spot chart, the extreme lows are all the way down in the 4.10 to 4.06 range. We could very well remain in a sideways/defensive posture right into the reports on the 30th.
Beans were not able to maintain early strength yesterday either and now with the overnight pressure we have nearby futures right back against last weeks lows and new crop pointed towards 12 once again.
It would appear that the front months are now even failing on mildly positive news that just a couple weeks ago would have sent prices higher. Export inspections were better than expected at 7.9 million bushels. This was the best week of shipments in the past 5 weeks and brings the year to date total up to 1.56 billion bushels. To reach the USDA target of 1.6 billion we need only average 3.6 million per week for the next 11.
The NOPA crush report for May was within expectations but still solid at 128.8 million bushels. This was nearly 4 million bushels lower than April but remains at a pace stronger than the USDA projections.
While the change was pretty insignificant, the good/excellent rating slipped 1% but stills reflect overall great conditions at 73%. The states with the largest declines were Mississippi, Kentucky and North Carolina.
I would not expect to see significant declines between now and the June 30th reports but unless the USDA provides bulls with something fresh to chew on at that time, I suspect it will be difficult to maintain these price levels. Support for nearby futures should be solid at the 14.00 level and 12.00 for the new.