July 5th, 2011
Title: The Long Grind Back??
Grains & Livestock: Chances are, if you are west of the Mississippi and haven’t been flooded or haven’t experienced severe-historical drought (yet) this year, you are expecting that the high in grain prices is likely in place. If you are instead in the central or eastern part of the growing region, or if you happen to be in the northern or southern periphery, you are probably wondering, “What in the world is going on with these prices, and how did the USDA come up with more acres in June than in March?” So, the question then becomes WHO’S RIGHT? The best way to ask that question, it would seem to me, is to break-out the MACRO-FUNDAMENTALS from the MICRO-FUNDAMENTALS and then go from there…so let’s do that here briefly.
I. For the top two Micro-Fundamentals, I think we need to focus first upon wheat–since it has been once again our leader in price-action, and has pulled the corn and the market sentiment in its direction for most of this past year. My analysis would suggest that the wheat has dropped enough in price to garner demand and improve exports, as well as likely keep the Black Sea wheat exports slow (I don’t think the Black Sea countries want to sell a limited supply of new-crop wheat at low prices; they would likely only be encouraged at higher prices if we’re talking about food-grade wheat). With this in mind, I would expect the wheat to be carving-out a major low shortly before or after the expiration of July Futures. The second major Micro-Fundamental is the corn crop conditions: my expectation is that the acreage report has been factored-in at this point, but if the crop conditions on Monday show an improvement of more than 3% in corn or beans, the trade will begin to think that the crop is getting bigger. This is because, like last year, the holes were shut-in by the height of the crops, and thus the “bumper” mentality started to build. I see this year as very similar: and most important, I see this year very similar to last in a very important aspect: LIKE LAST YEAR, I DON’T THINK THE USDA CAN HAVE BOTH HIGH HARVESTED ACRES (LIKE THEY HAVE NOW) AND A HIGH YIELD (LIKE THEY HAVE NOW). Something in either or both of these two will have to “give” in my view. Thus, for Micro-Fundamentals, I see the mid-July time frame as the best time for a price low to be in place.
II. What constitutes a price low technically? I have always thought that last week’s lows were critical to hold after the acreage report, but the markets went below them except for Nov. Beans. For Sep. Corn this is $6.36; for Sep. Wheat last week’s lows are $6.41 1/2. These two price levels, if we close above them on a WEEKLY BASIS, would to me constitute a technical low being in place…
III. For the Macro-Fundamentals, July will be a busy and nervous month I think: Greece, China, and the US Debt Limit will all be heavy influences in the trade. Continued… THERE IS MUCH MORE TO THIS WEEKLY LOOK AHEAD, INCLUDING OUTSIDE MARKETS SUCH AS ENERGIES, FINANCIALS, AND METALS, SO DON’T FORGET TO CHECK-OUT MY WEBSITE & SIGN-UP FOR A FREE TRIAL TO MY NEWSLETTER: www.GLOBALANALYTICS.BIZ. General Risk Disclosure—There is substantial risk of loss in trading futures and options, therefore you should carefully consider whether trading is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances. The information above is not meant to be advice to buy or sell futures and options.Options Risk Disclosure—The purchaser of options should be aware that he could lose all premium paid for such options as well as any commissions and fees. Further, purchasing deep-out-of-the-money options have a remote chance of becoming profitable. The writer or seller of options should be aware that there is unlimited risk and could result in such seller being required to maintain a futures position with any associated liabilities for margin.Past performance is not necessarily indicative of future results.Information Disclaimer—The information and data contained herein was obtained from sources deemed reliable. Their accuracy and completeness is not guaranteed. Any decision to purchase or sell based upon such information is the responsibility of the person authorizing the transaction.Copyright, 2010 Global Commodity Analytics & Consulting LLC