April 30, 2010 GRAIN THOUGHTS
It was a typical week where the market traded a little bit of everything as the growing season comes next and gets all the attention. Monday saw the grains either match or make new price highs for the month as they priced in the heavy rains over the weekend to slow planting progress this week with support behind the strength from surging demand indicators for corn and beans. Of course with new monthly high prices comes profit-taking as the month-end enters and funds pluck profits and pay bonuses on profits taken before April 30.
Turn-around Tuesday lived up to its name as prices pulled lower after lofty opening rallies Monday. Always be aware of the turn-around Tuesday affect as its accuracy in 90%. Traders have pent-up buying or selling thoughts that build oveer the weekend lending to big moves on Monday only to see profit-taking Tuesday reverse the Monday move. It is simple and when understood allows you to plan a trade entry more effectively. The rest of our week is positioning ahead of the next weather event as weather's impact on planting progress is 75% of our pricing psychology. Here is how it reads: This weekend sees 70% coverage of 1 to 2 inches over Missouri, southern Illinois, and Indiana. Iowa sees about 1/3 of the state wet with heavier rains in the southern delta. Next week, Sunday, May 2 to 7, looks to be wet across the Midwest with most of the rain Monday through Wednesday, but it is unclear on totals. May 7 to 11 is setting up wet as well. The 6 to 11 day overall outlook looks to slow what currently is a record fast corn and spring wheat planting pace and put bean planting behind the 5 year average. Note, we plant corn in April and early May and beans in May up to June 10. It all ends up in, but markets trade fear before fact and the fear is a fast corn and wheat pace leads to less bean acres.
So, expect support on some measure of planting delays. Index and trend-following funds who are the pricing force of the market continue their seasonal turn over on portfolio positioning from a negative winter stance to a positive long summer growing season stance. Index funds, who by contract-only buy long, have gone from long 452,000 contracts three weeks ago, to 467,000. On beans from 164,000 to 175,000 contracts and look to continue to build.
Trend-following funds that can buy long and build a short position have gone from short 65,000 contracts three weeks ago to short 38,000 corn contracts and short 17,000 beans to now long 36,000. Expect the positive position trend to continue on strong demand and weather growing season uncertainties into July as seasonals suggests.
Demand remains about the same for beans. Slow through May as South America finishes selling their crop, but the U.S. takes over after June 1, as the world's primary exporter of beans. 2010 is set to be another record export year with declining-ending stocks making weather's impact on yields June 10 to August 10, critical to keep from closing in on the 100 m.b. ending-stocks number that has only been avoided by three consecutive years of increasing production here.
Corn demand has come full circle, as you know on this report page at PFG I have been giving you information on a developing surge in corn demand that would effect the market in the second through fourth quarter of the year. On and off through February, March and April, I threaded together many issues on China that would lead to China and surrounding Asian neighbors to buy large amounts of U.S. corn. Well, it came to a head today when the U.S. government announced exports of corn to China. In the past decade, China was limited to only small amounts of U.S. corn purchases when they would sell old dated corn in inventory to surrounding Asian neighbors more concerned with quantity at value over quality. They then would turn to the U.S. to re-buy higher quality corn to replace it.
Here is what has led to China stopping exports to its neighbors and now turning as a net U.S. buyer. I told you in the many reports since February, China needed corn this year to meet feed needs to meet their mandate to increase hog and chicken populations for meat protein. Their mandate to sharply increase ethanol production from corn and to fill their strategic corn reserve to 40% of domestic usage.
I reported weekly on the El Nino-inspired drought that has cut corn production and forced the government to move corn out of its strategic reserve and move or sell into drought regions to insure livestock populations feed needs are met. So the meat protein makes it to market. These pieces of information threaded together all showed the increase in U.S. corn sales to China's neighbors the last eight weeks and today's potentially historic announcement of Chinese U.S. corn imports. The importance is it leaves wide open thoughts in the market as to how much corn will China buy near to long term 200 m.b. or 1 b.b. It is wide open China is the world's biggest corn consumer and they are in production and inventory problems now. This is not a bullish issue for any one day or week, but in the big picture for the marketing year ending September 1.
Current corn ending-stocks are projected to be 1.899 b.b., a fairly safe amount unless we have a dry summer and/or China buys half of it. 1 b.b. ending stocks inventory is tight so we have 800,000 to play with. With strong demand and the uncertainty of the growing season weather , were set to post our seasonal highs for the year on corn between June 10 and August 15; and beans June 25 and August 20. Add to your long corn positions on a close over 3.74 and look for next resistance at 3.88 then 4.04. Support remain at 3.50 . Bean support remains 9.75 and resistance at 10.30 add to longs on a close over 10.30 as 10.80 is next resistance.