Corn Is Near Bullish Reversal

June 19, 2010 09:12 AM
 
If you’re looking for good signs in the commodity markets, this was your week. Corn, soybeans and wheat all moved higher in the best week since March.

Soybeans, which had been in mostly a sideways trading pattern since the peak of last fall’s harvest, appear to have broken to the bullish side. Corn appears to have found support against the May lows, and it’s only a nickel away from breaking through the upper end of the range.

“We are very close to taking out the May highs in June. We are very close to taking out the May highs in June. We have the crop report on June 30th. If we can close another nickel higher than where we are now, we’ll have taken out May’s lows and highs. That would be a monthly key reversal higher.

Corn closed somewhat disappointing to end the otherwise very good week, Gulke says. The December contract tested highs on Friday, but retreated late, mostly because the market is uncertain about reasons behind EPA’s decision to delay its decision on E15 gasoline and what’s becoming somewhat lackluster buying from China.

China’s been buying corn, but not enough to set this thing on fire. We think there’s going to be more ethanol used, but now EPA says they’re going to wait until this fall (on the E15 blend). I think there must be enough uncertainty in the government circles at EPA and USDA to say, ‘you know we better make doggone sure this corn is there and we don’t lose corn because of too much heat or too much water. Then we start pumping 15% ethanol and look like idiots and run the price of food up prior to the election.”  

Positive News for Soybeans
Soybeans broke out of their long, sideways congestion period. What’s interesting about November beans is that we had this thing going sideways for a long time and we were around this $9.00/bu. level. In fact, we were at $9.00 bu./last October during the peak of harvest.”

That range was tested multiple times throughout the spring, and it appeared the market broke to the downside earlier in June. That was reversed this week, he believes.

 

“It broke to the downside as if well, the party’s over and we’re headed to $7.00 bu. But then it turned around and went right back up again and over the top of this sideways trading range. So it looks pretty good. I would think the next upside would be $9.50.”

Now it becomes a question of weather. With many forecasters calling for a tough end to the summer weather-wise, the market is looking ahead to August. At this point, Gulke says the concern is mostly for how strong soybeans can close the growing season and the fears of adverse effects from a potential La Nina are winning out. 

Premiums for Cash Beans
The cash mark is being driven by a shortage of product available for crushing and this is providing premium incentives in some parts of the country. Commercial soybean buyers are having a difficult time supplying soybean meal to livestock feeders.

“Some of our clients who are meal users have told us their bids from some of the commercials are quoted off of futures, but they won’t quote them a basis.”

They won’t tell Gulke’s clients what they will be charged until the product is delivered. All this, he says is resulting in a price that is probably $5.00-$10.00/ton more than if there were normal circumstances.

 

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