Corn: May corn settled up 4 ½ cents at $3.78 ½ which is the highest settlement in 4-months. For the week, CK gained 16 ¼ cents. New crop CZ settled at $3.88 ¼ which was only a 3 week high settlement. For the week, CZ gained just 2 ¾ cents. The funds came for it this week, driving May higher. However, New Crop CZ continued to be un-able to breach the $3.90 level, failing there for the 9th time in the last 2 months. Word of a sale of 344K MT to “unknown” was supportive. Also supportive was rumors that China will delay its old crop corn sales out another month. This delay in anticipated supply-dump was supportive. The story continues to be driven by 1) money flow and 2) weather. For the next 10-12 days, the planters should be rolling in full force as the forecast was for above normal temps and low precipitation in the I-states. Now to the funds: Today they bought an estimated 15K contracts of corn. This would still leave them short about 100K contracts. A settlement above $3.80 would open up the door for a run up to the 200-day average at $3.86 ¼. We did settle above the previous high for the year at $3.78 ¼. Will these technicals be enough to get the funds to cover more shorts? The next 2 weeks of trade will hold the answer. Hedgers: Today we recommended selling another 5% of guaranteed 2016 corn bushels. If CZ16 settles above $3.90 we will re-own those bushels.
Wheat: May wheat settled unchanged at $4.59 ¾. For the week, WK dropped ½ cent. New crop WN settled up ¾ cent at $4.67 ½, for the week, dropping just a ¼ cent. The wheat continues to be the red-headed-step child, receiving zero love from the buy programs driving beans and corn. Wheat, no matter if its soft winter or hard red, continues to be the Rodney Dangerfield of commodities-“It gets no respect”. Today the funds bought 2K contracts, but came into the day short 72K contracts. New crop WN continues to have a great wall of resistance at $4.87, with support at $4.50. This 40 cent range has been virtual cement for wheat since the beginning of the year. As for HRW, $5.00 has been the resistance above that the bulls just can’t overcome. After posting new life of contract lows on Monday at $4.52 ¾, we did see close to a 20 cent bounce. Hedgers: Continue to look for opportunities to roll down deep in the money puts. On Monday we had opportunities to roll down deep in the money puts in KCN, which quickly evaporated with the 20 cent rally.
Soybeans: May soybeans settled up 8 cents at $9.56. This was the highest settlement in 7 months. For the week SK gained 39 ¼ cents, or 4%. In the past 7 weeks, SK has gained, on a settlement basis, 93 cents or 11%. New crop SX16 settled up 7 ¼ cents at $8.66 ½ which is an 8-month high settlement. For the week, SX16 gained 35 ¾ cents. Technicals, as opposed to fundamental supply issues continued to be the rocket fuel for the beans. Funds bought 8K contracts of beans today, after coming in long an estimated 110K contracts. This compliments their long 100K contract of oil and 8K contracts of meal. La Nina in Malaysia set the ball rolling on this rally. The drought there created shortages of palm oil, which is a protein which has a pretty inelastic demand. They need it and they won’t go without it. That spark generated the flip in the funds from short 60K contracts to now long over 100K contracts. Fundamentally, the world is well supplied with soybeans both here in the US and abroad. Bottom line, you can thank your much maligned fund trend following money manager for this rally. Without their participation in the market, it’s doubtful we’d have had such a rally. Hedgers: Look to take profits on deep in the money call options. Many of the options which we recommended since before Christmas have had tremendous gains in value.
Conversely, if you’ve been waiting for higher prices to get a floor, this is a gift of a rally which may or may not extend further.
This was an interesting week in all the markets. Crude oil tried to rally but couldn’t take out chart resistance. The Dow Jones had rallied and is now just 400 points away from challenging its all time high at 18,351. Right now the Dow is at the top of its 2-year, 3,000 point trading range and has formed a gigantic W on the charts, and we are at the top of the trading range.
All of these things have one thing in common-technicals. For better or worse, markets have been ebbing and flowing on money flow and chart patterns much more than on fundamental news. For grain farmers, this has given us blessings of higher prices in both corn and soybeans.
In a market fundamentally over supplied, the universe has seen fit to give us 4-month highs in corn and 7-month highs in soybeans. Sadly the wheat continues to languish, but I am trying to be positive here. There is no guarantee that this rally will extend further. To fuel it, we’re eventually going to have to get a fundamental driver to compliment the technicals. If we don’t get that, I wouldn’t be surprised to see a correction.
Most likely that will come once the national media begin to talk about “the big run up in grain prices” My point is this. Take advantage of this move. Do not get lulled into doing nothing. It might not last as long as you “think it should” or “wish it would”.
Have any doubt? Go look at a continuation chart of soybeans. On June 1, 2015 beans rallied $1.39 from $9.21 up to $10.60. That rally took 7 weeks, and peaked on July 13th. Just 7 weeks later, the market had given that $1.39 back, plus another 63 cents, for a $2.00 per bushel collapse. Will it happen again? I have no idea. I just know it can.
Have a great and safe weekend!
CER