Will the Corn and Soybean Rally Continue Next Week?
Jun 08, 2012
Grain and soy markets desperately trying to hold onto recent gains as traders asses the latest weather models and try to anticipate the direction of next Tuesday’s USDA report. Producer are pointing to the recent history of both corn and soybeans posting significant rallies into the summer months. Corn generally picking up an extra $1-$2, while soybeans have religiously done even better the past few years. Moral of the story, producers seem to be almost certain prices are going to run much higher. Our office has been flooded with calls from producers the past couple of days who are kicking around the idea of buying back "new crop" sales in anticipation of Dec corn making another run to $7.00 and or beyond. I am telling you now be careful getting all "bulled" up in this environment. In years past, when the market moved to those extreme levels the funds were flying high and global economic growth was NOT in question. If the funds don't get behind the corn market in a big bad way the rally could be extremely short lived, i.e. just another typical "weather rally." Keep in mind we need ALL of the stars aligned to make a long-term run to higher ground ($6.50 - $7.50 range).
Soybean "bears" are certainly getting more nervous as the trade begins to talk about fewer and fewer second-crop bean acres going in the ground here in the US, as well as more talk about full-season beans in some areas needing to either be replanted or scrapped altogether with conditions simply too dry to qualify. Up until this past week it was almost assumed that total US soybean acres would be moving from 73.9 million up towards 76 million. Now there are starting to be debates across the trade in regards to if we will see the USDA move the soybean acreage numbers higher at all in their June 29th Acreage Report. Soybean "bears" are also keeping one eye on the late to arrive monsoon rains in India which could soon start to put a damper on their global soymeal export business.
Corn producers may want to take note of USDA's chief economist Joseph Glauber comments yesterday at the International Grains Council's annual conference. First he said that US corn yields could certainly reach record levels this year, ASSUMING normal weather. More importantly though he pointed out that domestic demand for corn from the ethanol sector was starting to flatten out. For me the weather is still to big of a "wild card" to predict a bumper crop, so I do not consider myself in that camp (it is just too dry in too many areas). I will however agree with what Glauber said about corn used for ethanol starting to level off. If you recall the corn used for ethanol number has been jumping much higher each and every year. I have been talking to many very reliable sources in the ethanol industry as of late and they all tell me the same thing..."domestically corn used for ethanol is starting to level-off, no question about it." The fear then is "IF" the weather ends up cooperating to some extent and we have a crop at or above 160 bushels per acre, then prices will be heading lower as corn used for domestic feed and ethanol production simply will not be able to keep pace with the gains in domestic production. Sure, we may see some short-term weather related rallies, but I am afraid moving aggressively higher will take a major crop failure of some sort (sub-150 yield). With this in mind, along with a strong basis, I will be entertaining MORE new crop sales on a rally in DEC12 north of $5.50. I am NOT trying to buy back any previous sales or lift hedges at this juncture!
I am in agreement that "dryness" continues to be a major concern. And I also realize if the rains don't come soon this crop is going to be under extremely serious stress in many key growing regions. I am not talking just a little rain, but substantial rain needs to fall in many parts or we are going to be seeing some rapid deterioration. But in my opinion the concerns and additional premium that will be added need to be used as selling opportunities. We have been patiently waiting for a rally during the growing period in order to get another 20-30% priced, now is the time to get your finger on the trigger... Sign-up for the free trial below for more help with cash sales...
Sunday afternoon's forecast will direct the trade as we re-open next week. I would suspect to see the USDA lower crop conditions just a hair on Monday afternoon in recognition of the dry conditions, but I wouldn't be expecting a major move. Then on Tuesday morning the trade seems to be looking for more bullish data coming from the June USDA report. Lets just hope we are not disappointed by the data. I can't remember the last time we were all looking for a bullish report and the USDA came out with numbers that were MORE bullish than we were thinking. Maybe this will be the time Santa delivers...I wouldn't hold your breath!
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