For the week, July corn was up 10¼ cents, December corn was 9¼ higher, July soybeans gained 37¾ cents, November soybeans were up 26¼ cents and July soybean meal soared $27.50 per short ton, with July soybean oil down 246 points. July Kansas City wheat fell 4 cents, July Chicago wheat was ¼ cent higher and July Minneapolis wheat was up 9 ¾ cents. July cotton dropped 128 points.
Corn, soybean and soybean meal futures posted higher weekly closes begging the question: Was the market adding a weather premium, or was it all technical buying?
Jerry Gulke, president of the Gulke Group, says, “The technicals in many of the grain markets started turning a few weeks ago and were signaling not to be short anymore,” he explains.
So, were the markets forecasting the weather problems that have come to light this week in the U.S. and South America?
Gulke says weather is the main factor that’s changed.
“Until this week, I didn’t hear any weather experts talking about how much rain they were getting in Argentina and southern Brazil. All of the sudden yesterday we were talking to friends in those areas who said the soybeans were sitting in about a foot of water, and there’s more coming. It’s serious,” he explains.
Some of the soybean crop is not retrievable, according to Gulke, and they still have quite a few soybeans left to harvest.
Meanwhile, it’s going to be hot and dry in Brazil for the second crop, or safrinha, corn areas as the dry season has started.
This weather event is coinciding with the United States planting season and as farmers face delays due to recent rains and more in the extended forecast.
“We’ve talked about this the past few weeks — that there was very little, if any, weather premium in the markets. However, we added some risk premium this week,” he says.
It is early yet, and U.S. farmers can get a great deal of the crop planted in a short amount of time.
“However, if we get another one of these rains in a week to 10 days then you’ve got a serious delay because of the water already setting in fields and that means later planting,” Gulke says.
There are even some farmers in the far northwestern Corn Belt who are talking about prevent plant already, he adds.
With July and November soybeans closing above $12 and July soybean meal rallying nearly $28 for the week, these contracts are now above key moving averages watched by technical traders. The same is true for July and December corn.
“If you’re a speculator, you are pretty nervous,” he says.
Speculators have been setting with big short positions heading into the growing season and are now being forced to cover those trades. The key to whether or not the rally can be sustained depends on weather but also how much of that short position the funds are willing to exit.
Where do the markets go from here?
“Now it becomes difficult. When markets start to explode, how much will they retrace? Even though it’s a technical analysis, I always ask myself what was it a few weeks ago or a month ago that caused the market trend to change? This week, we have completely different fundamentals than we thought we had a week or 10 days ago.”
Gulke says it’s hard to predict how far the grain markets could rally.
“There isn’t a technical system, or whatever, that’s going to catch the top. Now it becomes more of an art than a science,” he says.
While you can, pick targets based on past technical indicators, like 50% retracement levels, he says, “Sometimes you just need to find a place to start making some profitable sales and hope prices continue to go higher.”
For more information contact Jerry at info@gulkegroup.com.
