Corrective Pullback in the Bull Run Or Major Market Top?

July 23, 2012 01:38 AM
 

What Traders are Talking About:

Sharp price pressure overnight. Corn, soybean and wheat futures posted sharp losses overnight as traders took profits following recent price surges which left markets severely overbought. Encouragement for the corrective selling is coming from weather as this week's forecast isn't as threatening as previously expected and from outside markets amid renewed euro-zone concerns. The big question to start the week is whether markets have put in major highs and are ready for a sharp downside correction or if this is just a pause in the bull run.

* Forecast not a stressful. Forecasts call for very hot conditions across the Corn Belt today, with heat advisories and warnings throughout the region. But temps aren't expected to be quite as hot the remainder of the week, although they will remain above normal. There is also a better chance for precip in the Tuesday-Thursday period, although not all areas are in line to get needed rains. The National Weather Service forecast for Aug. 28-July 1 calls for above-normal temps to continue. The precip outlook is varied with a swath of above-normal rainfall expected over northern, north-central and eastern areas of the region, while southern and southwestern areas are expected to see below-normal precip.

The long and short of it: The forecast isn't as threatening as it was heading into the weekend, but there are questions about whether forecast rains will develop. At this stage, rains would benefit soybeans, but much of the corn crop has already suffered irreversible damage.

* Spanish concerns flare up. With weather and the drought dominating recent price action, it's been weeks since European concerns have impacted ag markets. But concerns Spain will need a full sovereign bailout are a market factor to start the week as the country fell deeper into recession in the second quarter. Escalating concerns in the country have driven the Spanish 10-year yield above 7.5%.

The long and short of it: Fundamentals are still strong for grains, but there is risk worsening global economics could put a top in the market even as yield and crop estimates continue to fall.

 

Follow me on Twitter: @BGrete


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