New-crop December corn has been showing signs of life lately with a bullish-looking chart. After reaching a new low of $3.25 1/2 in April, December corn has gradually moved higher, rallying nearly 20 cents per bushel above that low as managed money funds began to cover some shorts.
While the shorter-term 20-day moving average appears poised to cross the longer-term 50-day average -- typically a bullish indicator -- I have reason to believe that this may be a "fake out, break out" in the absence of a pollination-time weather issue. Corn fundamentals are overly bearish, with a projected 3.32 billion-bushel (bb) carryout. Corn conditions are excellent and weather in late June appears favorable. If there was one bullish indicator, it would be that managed money funds as of last Tuesday, were over 300,000 contracts net-short corn.
With a managed net fund that is estimated to be close to 325,000 contracts, including options to begin Monday trade, there is plenty of firepower for an upside move with bullish weather or demand news. The next four to six weeks is likely to tell the story, but in the absence of a weather issue, the path of least resistance is surely lower for December corn.
Unlike new-crop corn futures, November soybeans have both demand and a somewhat bullish chart pattern working in favor of a continued move to the upside. The 20-day moving average has recently crossed the 50-day average, and November appears to be coiling in a "bullish flag" chart pattern, suggesting higher prices ahead. Last week was the first time in a while that China bought over one million metric tons (mmt) (36.7 million bushels) of beans. With U.S. soybeans now holding a 45-cent price advantage to Brazil, that pattern looks to continue.
Managed money funds recently began to establish a small net-long position in soybeans, estimated at 20,000 contracts as of last Tuesday. The soybean balance sheet in both the world and the U.S. has been slowly tightening, although still adequate. If China continues to move toward adhering to their phase-one buying commitments, it is likely that soybeans will work higher. However, in the absence of any major weather issue for U.S. soybeans, the upside is surely limited, with major resistance just above, at $9.00 to $9.20.
KANSAS CITY JULY WHEAT
Kansas City July wheat was under pressure for much of the past week and had fallen for five consecutive days before Friday's higher close. Favorable harvest weather ahead, along with a surprise increase in U.S. wheat production and another new record-large world ending stocks projection of 11.6 bb has weighed on this market. Also pressuring wheat is the fact that U.S. wheat, to anyone but routine buyers, is not competitive.
KC July on Friday seemed to hit the uptrend line before bouncing, but a close under $4.43 on July is likely to lead to more weakness. It's the wrong time seasonally to expect a wheat rally, but the likely catalyst would be the hot and dry forecast for Russia and Kazakhstan ahead. Right now, it would appear that KC July may be content to trade within a $4.30 to $4.80 range.
Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of commodities or commodity futures involves substantial risk and are not suitable for everyone.
Dana Mantini can be reached at firstname.lastname@example.org
Follow Dana on Twitter @mantini_r
Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of grains and grain futures involve substantial risk and are not suitable for everyone.
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