The Grain Report

7/2/2009

Happy 4th!

Corn:

Our Thursday Weekly Export Sales Report came out at 7:30a central time showing 1.155 m.m.t. of old crop delivery corn was sold last week up 68% from the week prior and 67% over our four week average.  Key Asian customers that account for three quarters of our exportable grain exports were in for 648 t.m.t.vs.the three prior weeks of 410,220 and 413.  They love corn under 4.00.  The weeks over with corn still having hangover from the Bearish Tuesday Planting Acreage Report.  What traders have to understand is the Grain Markets have specific trading mindsets that shift yearly.  Back last December 5th, we put on our report that the year’s low prices for corn, beans and wheat are in and would rally into the end of December as large trading funds would have to balance their year end books regardless of fundamentals.  So- the Bear market was over.  By month end December; a sharp short covering rally occurred.  We then said goal accomplished and this mindset of trading was over and no further year end short covering would take place.  January saw a pull back.  On my 2009 Grain Outlook for the year- we said corn would rally to a range of 4.60 to 5.25 into spring the July to December Contract hit 4.50 to 4.70 by June 10th and we explained all the reasons why this Bullish Trading mindset would happen.  The December Lows were 3.40.  We said beans would rally into spring from current levels in December of 8.00 to a high of 13.00.  We hit 12.91 on the July Contract and for the reasons we gave.  We called for what back in December trading at 5.00 to rally into our Spring Planting Season to 7.50 to 8.75.  Chicago What hit 6.70.  Kansas City Wheat 7.30 and Minneapolis Wheat 8.00.  This great first half of the year rally and trading mindset too was finished in June as it should have been as all the underlying fundamental we said would occur taking prices to our levels would happen before we entered the growing season.  The point here is you have to have a new mindset to trade.  That mindset is a weather psychology.  90% of the Grain Market pricing through September 1st is weather and its impact and no planted and growing crop.  10% of the daily pricing is demand and the daily price swings in the Dollar Index, crude oil and stock indices.  History has taught us that July and August brings generally warm weather and timely rain beneficial to crop development.  We have not had a real drought since 1988.  However, it is a big growing area in this country and there are always a few weather scares as it is too hot here and not enough rain there.  The last two years saw ideal July-August weather.  The only difference is that we have a Heat Dome area in the Southwest that moved into the Midwest last week the end of June but moved back out west leaving this week cool.  There is going to be weather gurus that will call for this Heat Dome to reradiate back into the Midwest from time to time.  Currently WXRISK.COM the weather site sees some Western Grain Belt and Southern Delta rain this weekend and some better Midwest coverage possibly next Tuesday and Wednesday before late week sees the Heat Dome move in but for only three or four days.  If we come in Monday and the rains expected are drying up and there is a call for the Heat Dome to move in and stay a week or longer the market will rally beans to new contract highs as we are not far off them and December corn to fill the chart gap to 3.95.  Timely rains and coverage corn could push to 3.35 basis December Futures and November beans back to 9.43.  Weather rallies and breaks are big and quick and almost always start on Monday’s as traders return from a weekend and look at the 6 to 10 and 11 to 15 day forecast projections.  So change your mindset on trading psychology for the next eight weeks to a weather mindset.

Bean:

Thursday’s Weekly Export Sales Report showed 243 t.m.t. of new and old crop delivery beans were sold last week with China in for 68 t.m.t. but talk this week was they were in for almost 200 t.m.t. for old crop delivery to show up on next week’s report.  Any demand is Bullish for beans as were nearly running out of old crop supplies with the July 10th USDA Report expected to show ending stocks for this year under 100 m.b. but as I covered in the Corn commentary Beans too move to a weather trading psychology with one eye on demand and China.

Wheat:

The Weekly Export Sales Report showed 241 t.m.t. of wheat was sold last week down 34% from the week prior.  Demand remains weak as the U.S. is in the middle of its Winter Wheat Harvest that finished the growing season at a poor 45% of the crop in good to excellent condition and 55% very poor to fair condition.  This left the U.S. in the middle of a world with large quantities of poor quality wheat and lethargic demand.  However, hopes abounds.  The Spring Wheat Crop currently growing is of one of our highest quality ratings in years.  If this continues into early August, the Spring Wheat Crop delivered on the Minneapolis Wheat Exchange will be the most sought after wheat crop in the world for this year as millers here and abroad are offering big premiums for high quality milling wheat for human consumption.  Here is why high quality wheat is of great value.  First of all about 70% of corn goes to animal feed, so quantity is more important than quality.  Wheat is grown for human consumption.  Millers need wheat with very high quality and protein as when they begin the processing of foods like pasta, breads and snack foods they loose a lot of the protein.  The government allows them to add vitamins and minerals to adjust but it’s minimal.  They need to start with as high a protein crop as possible so the final product meets the human food standard set by the USDA.  The goal is to find a near term low in July to buy Minneapolis Spring Wheat Futures and catch a potential harvest demand cash rally in August.  Minneapolis Futures for September lie at the 6.30 area.

Tim Hannagan

Alaron Research Team
800.563.9510
thannagan@alaron.com

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