"We can easily forgive a child who is afraid of the dark;
the real tragedy of life is when men are afraid of the light."
-Plato
Commentary
July is currently on pace to rank as the third driest and third hottest of the last 118 years across the central US. A large-scale and occasionally intense heat wave should affect the central US over the next 10 days, with scattered 0.50" - 1.00" amounts affecting the Delta and northern/eastern Corn Belt this week. Despite some t-storms this week, below-average too much below-average rainfall is likely to continue. Reports of spider mites in soybeans are increasing as prolonged dry weather is giving the insect more time to multiply. A lot of Nebraska's farmers who irrigate have been ordered to stop because of drought conditions, the Lincoln Journal Star reported Saturday. It is unclear at this time if the order to stop irrigating might applies only to water from reservoirs and dams and not from aquifers and the ground wells, which make up the bulk of the water source in Nebraska.
Corn yields on paper have collapsed by analysts, with some already moving to 130bpa, which would be roughly 900mb smaller the current 146bpa estimate. Others point out that 14% of the crop was not harvested in 1988 vs. the more recent norm of 7-9%, which could further reduce production. These types of corn loss fears have some analysts trying to predict $10 corn prices to ration off the demand, which could be needed to spur the EPA into action to cut RFS mandates. Look for the wheat/corn spread to narrow from the current $.70+ premium to something closer to even money in order to spur heavy wheat feeding.
The price high should be seen in corn before the end of the month. A similar year was 1983 when the rally started on June 30 and ended August 15. Information moved slow back then with no internet, and today everyone knows everything the same day info comes out. I would say the high is in before the end of the month, with next Monday July 23 a key day for a high. Weather markets make highs early in the week, shake and bake middle of the week and then firm up into Friday for a retest of the highs or new highs to close the week. The end game is here, Corn over 8.50 and beans over 17.00 has me selling new crop again. It's just a matter of knowing what your farm is capable of producing.
US Dollar Weekly Chart
Corn
The gap that corn left on July 5th held last Thursday after the shake and bake we said would likly happen. That gap measures to 8.50-9.00.The monthly chart below sure makes the recent $2.60 move look small so far yet. Supporting the notion that a eventual run to $9.00 is not crazy. Corn had two chances to go limit today and did not. If corn is not above 783 this evening shortly after the opening, Turn-around-Tuesday will likly be the story for tomorrow.
Corn Monthly Chart
Beans
Beans are at 1650 which was the 2008 high and July expired last week checking that out. Spot beans may get bounced around up here for a few days, but a close over 1660 should have beans over 17.00 the next day.
Weekly Bean Chart
Wheat
Last week Monday I said "Wheat rallies until corn stops going up. 9.85-10.00 should cause pause in the market because that will match corn at 7.75-8.00." I would talk about Russian wheat troubles and India's exports, but what does it matter. If corn goes up, wheat goes up and vice versa. The corn/wheat spread should continue to narrow until corn tops.
Minn Wheat Weekly Chart
Live Cattle and Feeder Cattle
Higher corn is really taking its toll on feeder cattle. It's possible that they could get really stupid and trade down to the 123.00 multi-year support level (see chart below). Packer margins are now back in the red, losing $6 per head, and choice beef is trading in the $184 area. Cash offers started the week at $117, and trade will probably not occur until later in the week. The feed shortage will hit the cattle industry hard. Sometime down the road, this will be extremely bullish, but better get out the band aids first.
August Live Cattle Daily Chart
August Feeder Cattle Monthly Chart
Gold
For weeks now I have been saying gold is a pinball machine trading between the two trend lines. When it changes the story will change.
Gold Daily Chart
Crude
The headlines read today "Oil prices climbed for a fourth day on hopes that the Federal Reserve will take additional steps to prop up the economy." Notice nothing to do with improving demand or less supply as why a 12 dollar rally recently in oil. Oil should encounter heavy resistance at 91.00-92.00 where it can be sold.
August Crude Oil Daily Chart
07-16-12
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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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July Minneapolis put in quite the performance today (plus 42 cents), most likely because of drought concerns in Europe. September looks like it wants to go the red line 810 resistance area at the very least.
Higher corn is weighing on cattle futures, and the drought is leading to herd liquidation. Add a potential seasonal high in beef prices (choice now $193.50), it is likely that cattle have put in a short term top. What's bearish now is bullish later. Supplies will get very tight later in the year and into next year.
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