"We must be willing to let go of the life we planned so as to
have the life that is waiting for us."
-Joseph Campbell
Commentary
Soybean futures on the Chinese Dalian Commodity Exchange overnight rose as expectations of fresh measures to stimulate China's economy outweighed fears of the impact of Europe's debt crisis. EU wheat futures were lower, as the northern hemisphere's winter wheat crop has seen much needed rain, while there is little by way of fresh supportive news in the market for bulls. Conflicting weather reports for the former Soviet Union left many sitting on their hands coming out of the long weekend.
Weekend rains were largely a bust for the dry areas of the southern ¾ of the Corn Belt, although some rain this morning in the ECB. Forecasts for later this week include 0.5-1.5" of rain for the drier areas of the Corn Belt. The bears argue that the nice rain system will help crops later this week across much of the Midwest, while the bulls argue that following a month of dry weather with above normal temps, 1" of rain is regular and that the extended forecast returns a warm to hot and below normal rainfall pattern.
A report from RJO's Powerline Group on Friday commented on the extent of dryness in Illinois, which is very similar to what is going on in large portions of the Midwest with the exception of the northwestern 1/3rd of the belt. Yesterday while I was driving from Champaign, Illinois to Chicago, blowing dust filled the air and WBBM radio said that I-80 west out of Chicago had almost zero visibility because of the blowing dust. All of a sudden things have turn hot and dry. We will have 90 degrees temps for the next 4 days in a row with only a chance of rain. Our soil here in east central Illinois is so dry it has caused soybean germination problems. Herbicide chemicals that are being put on corn fields are not working very well because of the hot, dry conditions. There is absolutely no subsoil moisture because of the lack of snow this past winter. Field tiles have no water coming out of them. From here on out timely rains will be needed to keep this corn and bean crop from deteriorating quickly. As bearish as the price fundamentals look going into this fall's corn harvest, we must now take caution to the current dryness. If we go another two weeks with these hot dry conditions, the grain markets are going to turn sharply higher, especially soybeans. Temps normally increase into July and precipitation declines. If we just limp along through June, July and August, it could really take yields down hard. I have seen these types of years before. 1983 particularly sticks out in my head. Also 1988 we had 100 degree heat start about the last week of May, much like what we are going to see this weekend.
One of the meteorological indicators forecasters are looking at is whether we move into an El Nino later this year. Some climatologists note that years in which we move rapidly from a La Nina into a El Nino coincide with US crop problems. With that in mind, climate indicators across the tropical Pacific Ocean suggest El Nino conditions are likely to develop in the second half of the year, Australia's Bureau of Meteorology said Tuesday. El Nino is associated with above-average temperatures in the central and eastern Pacific and below-average winter and spring rainfall across eastern Australia, which could hurt winter crops such as wheat and canola. The Southern Oscillation Index fell to -3.3 in the 30 days ended May 27, from +5.3 in the 30 days ended May 14. The bureau said the measure can fluctuate widely this time of year. Sustained SOI values below -8.0 might indicate an El Nino event and above +8.0 might indicate its opposite, a La Nina.
Export terminals at Louisiana Gulf are quoting corn basis in $.71-$.75 over July futures vs. $.83-$.92 over July futures at the same time last week, according to data from USDA. The rise in PNW corn basis may be tied to talk that China is in the market buying corn (possibly 2 cargos) for July/Aug after the recent drop in the board price.
US Dollar Weekly Chart
Corn
The spot price on corn broke below support just above 570 that held in October and December. Obviously if futures weren't broke by the nano-robotic traders, the basis wouldn't need to be at historical inverse values. Apparently the big money being made is running the long old crop/short new crop traders out of town because even though their trade is probably right, the trade is discussing how an early crop will be harvested in time for Peter to rob Paul and bring new crop into old crop position. My question is who is going to truck corn 500-800 miles from the southern areas if there is no spread to pay for it. This will make for an interesting late summer price game.
Continuous Corn Daily Chart
Beans
Soybeans survived the collapse in the grain trade today, but as the chart below shows, another 20 cents higher from today's high will bring in significant resistance. 1420-1425 is the purple line resistance, and that line as you can see is very prominent on the chart to defining bullish or bearish mode.
July IntradayBean Chart
Wheat
Last week we warned that Chicago wheat would likely test 650-655 before meaningful support can be found on the chart. Closing below that by much will allow wheat to collapse again and make the past week rally just another weather trade flash in the pan. 650 has to hold or this market will look like corn.
Chicago Wheat Daily Chart
Live Cattle and Feeder Cattle
Early calls for cash trade this week are steady at $120-121, and $190-192 on a dressed basis. Futures went into consolidation mode, as June was extremely discounted to the most recent cash trade. Packer margins are inching back into the red, now losing a little over $2 per head. Choice cutouts were 75 cents higher at midday (195.38), now again approaching that magical $200 resistance area, so things could get interesting in the near term. The outlook remains bullish for the last half of the year.
August Live Cattle Daily Chart
August Feeder Cattle Daily Chart
The US dollar is rising and gold had been going sideways the past two weeks through that. But the chart is beginning to look more and more like it is ready for an ugly collapse below support at 1525. Today put in an outside day down in price action. Unless gold quickly get s back above 1580 to nullify that, you have to say a further breakdown is eminent.
Gold Daily Chart
Crude
Given the size and speed of the decline in oil, you would expect the bounce that has occurred over the past 3 days to be larger, but it is not. It will take a close above 93.00 to even make the bears think the down draft is showing any sign of stopping. Now if only the refiners/wholesalers/gasoline stations would take note of this.
Crude Oil daily Chart
05-21-12
Link (in blue) below to view the latest market prediction interview on KFYR - TV:
NOTE: With the exception of livestock, all trades will be entered in the electronic markets unless otherwise noted. Hedge recommendations and Trade recommendations are totally separate, and may sometimes conflict with one another. It is strongly suggested that Spec trades and Hedge trades be done in separate accounts.
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A word to the Wise
Past performance is not indicative of future results. The information contained in this report is intended for informational purposes only and is the opinion of the writer and may change at any time. This information was compiled from sources believed to be reliable to Heartland Investor Capital Management , Inc. but accuracy cannot be and is not guaranteed. There is no warranty, expressed or implied, in regards to this information for any particular purpose. There is SIGNIFICANT RISK of LOSS involved in trading futures and / or options on futures and may not be suitable for all investors. Investors should consider these RISKS and evaluate their suitability based on their financial conditions. No one should ever consider trading futures or options on futures with anything other than RISK CAPITAL . NO LIABILITY on the part of the author exists for any trading loss you may incur in the use of this information. The information contained in this newsletter is privileged, confidential and protected from disclosure. Any further disclosure or use, distribution, dissemination or copying of this message or any attachment is strictly prohibited.
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