Grain Spreads: Surprises and Realities

Sean Lusk General Commentary Leave a Comment


Accompanied with today’s written report is the weekly continuous Corn chart with December as the most actively traded contract. The last three days have seen the corn market first short cover into Tuesday’s prospective plantings and on farm stocks report, and then rally after its findings. From Monday’s low to today’s high saw a 40 cent rally from low to high. Yesterdays surprise cut in corn planted acres from 97 million in March to 92 million acres currently and 3 million acres below the average trade guess had specs and funds short covering en masse. I would imagine this type of short covering extends into this three day holiday weekend before the trade assesses the balance sheet when we return next week. Remember the USDA will be out with the Monthly WASDE report on Friday July 10th at 11am. In my view the suprise cut in acres caught many shorts (280K approx.) with their pants down, and perhaps created a bit more uncertainty moving forward. Weather models are also changing to a hotter July forecast. Will needed rains occur during pollination or not? Funds in my view wont stick around short the market if hot and dry conditions without moisture show up and remain in July. Therefore we could see some gap openings higher or lower given weather forecasts on the Sunday night re-opening sessions the next four weeks in my view. for the next 4 weeks. Funds have covered around 60 to 80 K shorts so far this week in my view. Will they go to a neutral position? Yesterday we closed at 3.51 which is a ten percent threshold down for the calendar year. Today we closed at 360.4 and made a high of 363. Todays rally essentially took out the high end of the range for the 2nd quarter for corn. We maybe ready to establish a new range. Five percent down for the year is at 3.69/3.70 area and a major resistance area in my opinion. A close above this area and we could see the market trade up to the 3.85/3.88 level. A close above 3.70 is needed in my view to prod more funds out of their shorts. Weather and its impact on future yields will be the big determinant in my view that could urge them to do so.

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