Are We Seeing the Top in the Corn Market?
Jul 02, 2012
Weather continues to remain the major focus here in the Ag markets, as more than 1,000 plus record high-temps were broken over the weekend all across the US. Also some extremely high winds (in excess of +80mph) in many parts of IN, OH, PA, etc...that may have done some substantial wind-damage to many eastern US fields. Rainfall was limited to about 25% of the Midwest, with amounts ranging for the most part form between 0.10 to 1.00 inch. As far as the weather models moving forward, there really wasn't any major changes made over the weekend, if anything it maybe a little drier than when we last traded on Friday. Most sources are forecasting more extreme-heat for the next 10-days, with a possible cool-down at the tail end of the forecast. The GFS model doesn't seem to show the heat returning any time soon after this wave works its way across the Midwest, but as far as the corn crop is concerned the cool down may be a couple of weeks too late in getting here. The European model seems to show the ridge building back up again out in the Plains and some more extended heat even beyond this wave. Net-net still some disagreement on the longer-term outlook, but "HEAT" is a major concern as rising night time temps stress the crops even further. On the global front conditions may actually be improving a hair. We are hearing about more rains falling in the Northern Chinese Plains, primarily working from the South to the North. There is also some rain relieving drought stress in key parts of Russia and Ukraine, not much but some. The monsoon rains in India continue to lag behind normal levels but there are some showers now falling. All-in-all I would have to say the "global" weather conditions have slightly improved while the US continues to bake.
Corn "bulls" would like to "technically" see the July contracts close above the $6.73^4 level placing the next upside target somewhere around $7.05. With June 1 Stocks now estimated at just 3.149 billion, the tightest since 2004, and new crop yield estimates quickly falling, one could certainly make an argument for higher prices, especially in the near-term. With the USDA adding another 500,000 plus corn acres to the equation, you have to assume this bumped the total yield bout 1 bushel per acre. On the flip side however extreme heat and lack of moisture has cut anywhere form 10-20 bushels off the top-end of the yield estimate. Moral of the story the crop is definitely getting smaller. The question is "WHEN" will the market post the "highs" and how long can we stay there. If you compare the trade to 1988, like so many analyst are doing right now, you need to realize the Dec corn posted its high on July 5th, and Nov soybeans posted their high on June 23rd. My point is with "demand" in question we may end up posting our high before the July 11th USDA report. One thing that could keep the market moving higher is "harvested acres." There are some bulls arguing that harvested acres are too high right now, I would agree to some extent, but also I think the USDA has made some early adjustments and is on the right track. Certainly the "harvested" acreage numbers could be pushed lower as more prodders beginning making insurance claims and declaring the crop a total loss. This will certainly be something we need to carefully watch for in the coming reports. Another thing that could extend the rally is some additional help from the "outside" markets. Despite "demand" being so heavily questioned, "IF" we can sustain a "risk-on" type theme in the commodity markets the bull-run may actually last a little longer than anticipated. Your takeaway should be, to sustain a longer-term rally we are going to need to see: Additional yield reductions due to record setting heat and extremely dry conditions; "Harvested acres" will need to continue dropping; The "outside" markets will need to be conducive for allowing the "funds" to build more length. Basically we need the problems in Europe to subside for a short-period of time, which in turn may put some pressure on the US dollar. If the US dollar doesn't continue to weaken, I doubt we will see it will see the funds adding a ton of length.
The reality of a corn yield less than 150 bushels per acre and a bean yield less than 40 is becoming much more of a reality. BEcause of this I continue to preach ONLY playing the grain and soy markets from the long side, as I believe this "weather" trend is set to continue. While we may see some occasional breaks in the short-term on a few wetter and cooler changes made to the forecasts, I am doubtful the breaks will be sustained for very long, or should I say at least until more specifics are known about the crop. The trade feels as if it may have missed the South American weather market by discounting the problems early on. With this fresh in the minds of many traders, I am doubtful they will make that mistake twice in the same year. Therefor I expect most breaks to be fairly well supported, until "ACTUAL" yields start to be reported out of the fields. The weather right now is just too extreme, you have to believe that some type of fairly significant crop damage has been done. Producers should be looking to make more sales between now and the July 11th USDA report.
We are making some moves in response to what the market is showing us. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will see where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow" and the Outside Markets. Just click here - Van Trump Report