Why the Grain Market is on the Rally
Aug 03, 2009
The dog days of August are no more. Normally, at this time the market is rather quiet and farmers are able to take a vacation before the kids head back to school. Well this year the old rules have been set aside. Last week, as I suggested the market bottom was on 7/22/09 at $3.1475 in December corn and on 7/8/0 in November beans at $8.82. With today’s rally, November beans went to an impressive $10.424 has now posted a $1.604 rally in 18 days with the most of the rally done in the last three trading sessions. The next overhead resistance level will be the 6/12 to 6/15 gap which goes from a high of $10.69 to a low of $10.44. It traded into the gap today but did not close it. If November beans does close above $10.70, the bulls will be raging and the bears will be heading for the doors. If this level is breached the next major resistance point will be the 9/26/2009 gap at $11.7.
As for corn with today’s rally to $3.734 it has recovered 58 cents-plus of which most of the gain was in the last three days. Today’s move tested the 6/29 to 6/30 gap left at $3.96 high to a low of $3.75.
Why the rally? I see three primary reasons. First, while the crop conditions are going to remain above the five year average and suggest good corn and bean crops many people are suggesting August weather could turn ugly by the end of the month for beans. Some are saying we could develop a pattern like 2008 where corn yield improved but bean yields dropped.
The second reason, the potential of a yield reduction due to the lateness of the crop and the potential of a frost continues to keep the bulls excited and the bears on the defensive. I don’t believe this concern will really decline until we are well into the second week of September.
The third reason is outside markets. China bought a big unit of beans last week. This is getting end users a little concerned that they may have waited too long to get long. This plus the general earning reports coming out of China are good along with the U.S. business. The bias is increasing that the recession is over and the economic recovery is under way. This has lead to the dollar dropping and the oil market rallying. All this outside price influence has helped to trigger aggressive buying and short covering.
My thoughts are unchanged. The bull is using up a lot of energy right now. By early October we will have the reduced acres, reduce crop size and the increased economy all factored in. This leads me to the conclusion that the risk is rising significantly that we will see the highs for the 2009 crop just before the combines start to run. Again, we want to sell beans off the combine and focus on selling the storage premium being offered in corn.
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