Grains Pressured Overnight, Crop Progress Bearish
May 22, 2012
· Grains lower overnight led by wheat; Crop Progress yesterday afternoon seen as bearish; Most wheat contracts closing in the middle of a 40+ cent trading range yesterday, rejecting new highs; Noted spread unwinding seen in old vs. new crop contracts in both soybeans and corn
· Crop Progress pegging corn 96% planted with a crop rating at 77% good-excellent; Soybeans 76% planted vs. 42% on average; Winter Wheat 3% harvested, rated 58% good-excellent; Spring Wheat 99% planted, rated 74% good-excellent
· Forecasters looking for some rains in dry wheat areas of Russia, which may have added to pressure overnight; US slated for hot temps this weekend with scattered rains
· Macro markets have been mostly negative; US$ mostly higher with crude down; Equities marginally higher today; US$ chart showing a bull flag pattern, trade above 82.00/June needed to confirm upside breakout
· Wheat in Kansas, the largest wheat producing state, rated 43% good-excellent; 5th straight week of rating declines; The KS crop has dropped 26% in the good-excellent category since April 15th due to lack of rain and warm temps
· Technicians looking for support in the 620 area in the July corn contract; Basis levels softening slightly yesterday
On an extended weather threat, we believe the December corn contract could test the 5.70 level. The majority of the recent rally has been short covering, as open interest has dropped. Any light interest in long positions from fund traders could easily push the market another 35 cents, in our opinion. Long term, we believe there is still significant potential for record corn yields this year. Most producers seem to be waiting for higher prices to extend coverage on new crop corn. The last couple of years have certainly conditioned some producers to wait on sales, which paid off in 2010 and 2011.
We believe that November soybeans have seen the highs barring a significant weather issue. Acreage will likely increase 1+ million at a bare minimum, while many believe an increase of 2mil+ is likely. South American acreage will likely be enormous this fall due to high prices.
As always, call the office with questions or concerns.