When the grain market opened Monday night it looked as if the continuation of last weeks rally would yield higher prices for corn, wheat,and beans this week. However sellers emerged on Tuesday prompted by a wave of selling in equities, energy, and currencies against a rising greenback that in my view eventually spilled into the grain sector. Tuesday nights planting progress and crop condition updates enhanced the long liquidation of managed funds amid planting progress numbers and crop conditions that bested expectations in my view.
Lets start with wheat. Winter wheat condition and the continued dryness concerns gave thoughts to the good to excellent condition being lowered week on week. The surprise was that the good to excellent rating actually rose two points to 38 percent good to excellent vs 36 last week and 50 last year, with the 10 year average at 46. Note: open interest went up in Chicago wheat 17,837 contracts on Friday and 6,294 in KC. In my view long positions joining the rally amid the euphoria of not wanting to miss a potential 6.00 Kc wheat print into a three-day weekend were the reasons for the additional buyers. These longs in my opinion were most likely the first to get banged out as the KC wheat has traded back from 574 (this weeks high) to 536 (low), before firming on the close today at 541. Here are the technical in my view in July KC wheat. If we close under 5.31, I look for more liquidation to take place pushing the market down to 5.14. If that doesn’t hold its Katy bar the door down to 4.88 in my view. Resistance is up at 551.6 and with a close over 562.4 is next. A close over and the market would retest 574 and last years high at 577. A close over here and my target is 6.07.
Trade: KC wheat vs Corn. The last three rallies pushed KC wheat over corn to the 1.66 level KC over. If this level gets taken out the next target is 1.88 KC over. We need to watch KC wheat and if it can hold 5.31. If it can’t sell this spread for a move all the way down 1.03 over. However a close over 5.51 could push this spread back 1.66 Kc over and ultimately to my upside target at 1.88.
Corn/Beans
Both contracts felt heavy last week as managed money has stayed long as talk of future decreases to new crop ending stocks fueled buying. However both crops have been put into the ground at a frenzied pace as planting windows throughout the Midwest opened up in May. Managed money positions of note had funds long 200 K in corn, 100 K in beans, and 110 K in meal. While it’s too early to focus on conditions at this stage of the game, the good to excellent condition for corn at 79 percent this week was the second highest in the last 25 years in late May. With beans over 70 percent planted already and rain events across the Midwest not spurring any talk of drought, beans and corn did what they should have and sold off in my view. For beans it’s all about the meal in then near term and I have been pounding the gavel with this premise for some time. If meal closes below 373, get short beans as I feel they will test 997 basis July. Meal has a fifty percent retracement level at 357 basis July which is from the yearly low (310) to the highs at 406. To me that’s where the funds could push it if commercial end-user buying doesn’t emerge soon. While the heat dome sits in the western wheat belt until June 12th, I’m not seeing much indication on any change or push into the Midwest anytime soon. Multiple trend lines converge this week at 1016, 1013.4, and 1009 July soybeans. A close below and 987 is next. A close below there and the market could push to 973. Resistance is 1038.4. A close above and the market trades to 1061.
Nov 18 /Nov 19 soybean spread: has a hefty premium or inverse at 43 cents Nov 18 over. Nov 18 has traded to 58 over earlier this year. Strong support is at 30 cents over which I think could get tested quick if beans move lower. With questions swirling on what new crop carry will be for beans, this spread should trade inverse for a while until more is known on what acreage and how the USDA is factoring exports aside from all this tariff nonsense and noise. However at 45 to 50 cents Nov 18 over.,the premium year on year maybe overstating export business down the road. If we do not get a weather market this year, this spread should be sold in my view. Something to watch as there maybe 70 cents to catch through summer in my opinion.
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