Technically Speaking

i agree

Our bullish theme for corn depends on hard red wheat (spring and winter). We would not be surprised to see both corn and wheat stocks below USDA's current projections in the June 28th report. A lower corn stocks may not have as much punch for higher prices in new crop. This is because of the perceived increase in production versus weak use - especially exports. (USDA is being very kind with foreign corn demand. Our corn exports could be as weak as advertised.) (We think USDA will be conservative with production estimates. There will be a lot of growing season remaining and planted acres will need to be resurveyed. The corn's crop rating, more than likely, will point to production levels before USDA prints a representative number. Nitrogen issues could start being reflected in the upcoming corn condition reports.) The issue with hard red winter wheat (HRWW) will be harvested acres not yield. The level of abandonment could be large. This is where production will be lost. The acres that are harvest will have respectable yields. Current WASDE estimates have total foreign wheat production at trend line with foreign domestic use below trend line. These estimates points to the US exporting 975 million bushels of all wheat. A normal distribution of export would indicate around 390 million bushels of HRWW would be exported to meet the World's needs. Our balance sheet, at this level of export, would result in record tight ending stocks for HRWW. Normally we would expect a decline in feed and residual use to free up some supply. It does not appear, with current price spreads between corn and wheat, the tight old crop corn supply and late harvested new crop corn, like this will happen. Hard red spring wheat (HRSW) is a substitute for HRWW. The current planting pace of the spring crop points to a decline of something like 1.1million planted acres from USDA's March estimate. The tightness of HRSW's balance sheet (even with reduced planted acres) is dependent upon wheat production in the Canadian Prairies. USDA current is expecting 29 MMT, a 6.5% increase in the Canadian production over last year (27.2 MMT). Canadian production below last year may be needed to see a tight stock situation in US HRSW. (US durum stock could also end up being very tight depending on Canadian durum production.) The tight wheat stocks will move wheat prices higher pulling corn along. Our model indicates new crop corn production could be low enough to move prices on its own. The price move on corn's balance sheet could be mild because demand (mainly exports and overstated Feed & Residual) does not appear to be there to justify a stronger move. The concern for wheat's production should occur, if it happens at all, before the trade/USDA acknowledges the tightness of corn, if it happens at all. The situation with wheat could be the first step in corn prices moving higher. A tight wheat position might enhance corn's price prospects. Wheat stocks below 710 million bushel could indicate heavy wheat feeding in the 4th quarter of wheat old crop year. Freeport, IL

Update: It is interesting to note that the Dec corn contract moved lower following the release of the June crop production report, falling to a low of $5.32 1/4. Take another look at the daily chart. This was nothing more than a test of theh 67% retracement level discussed earlier. After hitting this support the contract posted a modest rally.