Grain Spreads: Wait Until August

Sean Lusk General Commentary Leave a Comment

I don’t know what was more surprising, the 4.5 million cut in soybean plantings or the 4.7 million acre increase in corn seedings ? Take your pick but for me its corn by a nose. Remember it was only two weeks ago that the USDA was much more aggressive in altering US corn production, and took an ax to both US corn acreage and yield. Planted US corn acres were lowered 3 million. Yield was lowered a massive 10 Bu/Acre to 166. Both changes were record large for June. The difference is in how the USDA conducts the surveys apparently. Just two weeks prior the USDA lowered new crop ending stocks by 810 million bushels (33%) from the May report. New Crop ending stocks came in 1.675 million bushels. Today’s report had corn seedings at 91.7 million acres, up 1.8 million from two weeks ago and 2.0 million acres from last year. There’s something amiss here.

Note: USDA admitted the numbers are out of date. Buried in Friday’s report was USDA announcing it will resurvey corn acres in 13 states, planted acreage of soybeans in 14 states and cotton in Arkansas. Those findings will be released in August in its monthly WASDE report Monday August 12th at 11 AM. Still though there was technical damage in today’s report regarding price and one wonders if this nonsense survey was asked of corn end users instead corn producers. I admit there are always adjustments and revisions and therefore surprises on these reports but how does one lower ending stocks by a historic large 800 million bushels in early June then just two weeks later dramatically raise acreage numbers higher than the year prior. I’ve preached that taking a position on both sides of the market into these reports was the safest way to play them and today’s release proves my point.

What can control our trading is the action of the charts and letting them be our guide for entry and exit. Below is Dec 19 Corn. The high this week made today was 4.68. That level is key as its 20 percent higher for the year.Funds in my view pay heed to these percentage levels. Support though is designated by the down arrow (see chart) which the market settled under today that becomes resistance into next week at 434.4. A close over and we move to 453 and then 463.6 (downward trend line), then 4.68. Under 434.4 and next support is 416.4 and then its 4.04 bottom edge of a gap on the weekly chart. Amid the confusion of this report seemingly getting thrown out with adjustments coming in August, the market is going to be more focused on yield potential. Next condition report comes Monday at 3 pm. The next supply/demand report by the USDA is Thursday July 11th at 11 AM central. Acres aside its not what you plant its what you grow, however the acreage debate for both corn and beans will continue.

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