"Do not let what you cannot do interfere with what you can do."

John Wooden

Since the report has pasted yesterday, weather is at the forefront of the grain trade, with very much needed soaking rains apparently headed for the WCB, including the drier areas of IA/NE. 5-day forecasted precip shows a sizable rain system impacting IA/NE/SD/MN to the tune of 0.75-2.90". Areas SE of a line from Kansas City to Green Bay, including IL/IN/OH/MO, should remain dry. The GFS updates are a bit more aggressive with rains in the 6-10 day, showing 0.30-0.80" with isolated 1.00" amounts in the SE Midwest beginning late next week. With 51% of US corn/soybean production seeing less than 50% of normal precip over the last 30 days, these rain forecasts need to materialize.

The bullish items in yesterday's USDA reports was the old/new crop projected US carryouts as outlined in this report from RJO Market Research and Trading. For now, the market is being faced with an unexpectedly tight hold on the crop balance sheet, while there is increasing concern about the new crop balance sheet given the dryness in the eastern corn belt. This concern is not necessarily due to yield concerns as much as it is the potential for double-cropped acreage to not be as large as previously thought due to the dryness. There appears to be an increasing reluctance to plant soybeans in SRW areas following harvest given the extreme dryness in parts of IL and IN. Given the historic tightness currently forecast for the 2012/13 marketing year, the balance sheet can ill-afford anything that further reduces supply. Regarding the 2012/13 balance sheet, with the 35 million bushel cut in beginning stocks, USDA was forced to cut demand just to keep ending stocks are absolute minimal levels. Exports were cut 20 million bushels to 1.485 billion, while crush was lowered 10 million to 1.645 billion. This still resulted in 2012/13 ending stocks declining by 5 million bushels to 140 million. The USDA's 2012/13 stocks/usage ratio currently sits at 4.3% and is the lowest the USDA has ever estimated the new crop balance sheet in a June report.

You really have to ask yourself. If 2011/12 US soybean carryout is going to be just 175mb and corn 851mb, leaving stocks to use ratios of 5.6% and 6.7% respectively, why is there a $.60 premium in the MGE average national corn basis vs. the soybean basis? That is just one of several questions being asked by traders this morning. The USDA also opted to leave corn yields alone, despite declining conditions and anecdotal reports of serious dryness in the ECB. The trade consensus on corn yields seems to be gravitating towards 161-163bpa. It was also interesting that the 2012/13 soy meal balance sheet was a cut due to lower domestic use and exports were down 800,000mt from last year. This comes despite an increase in corn demand for feed of 900mb and a drop in feed wheat use, both of which would require more protein. Traders also seemed to take issue with the USDA's decision to increase Chinese production to 195mmt, the ninth straight year of record production. Imports were left unchanged at 7mmt, and 12/13 carryout was seen at 59.8mmt, a 29.7% stocks/use. Many see the USDA corn estimates over the last several years for China a comedy of errors that they continue to compound. Influential analyst Bill Gary of CIS, Inc. cynically stated yesterday that once again, the trade will view today's USDA reports as manufactured in an effort to minimize price advances. Although we do not necessarily believe the USDA manipulates balances, we do have serious disagreement with the methods utilized to forecast production and usage. We expect all grain futures to remain on the defensive as long as the global economic outlook remains in doubt.

One of the oldest adages in trading is that when a market refuses to respond to bullish news, that's bearish. This morning's CommStock report said exactly that, noting that there is a lot of angst out there where crops are now in suspended animation waiting for rain. While they have been beating the drums trying to stir up a weather market, the weather bulls have not gotten much response yet. The lack of response to bullish news is bearish. The markets appear to believe that dry areas will get rain 5 minutes before it is too late. Extreme heat typically trips a bullish market response and so far heat waves have been brief. The bearish macro-market fundamentals are much of the reason for the lack of fund interest in commodities but the supply/demand fundamentals are not bullish for corn and wheat either. Imagine what one good Corn-Belt general rain would do to the markets? The current dry weather is the only thing keeping CBOT markets up. Sell rallies not weakness.

The US dollar is retreating as I predicted it would from the first of the month. The problem is , the setback was only a reliable prediction for two weeks. With the important Greek vote due this weekend, The US dollar could turn back up and make a high into the first of July again. That means if it rains soon and the US dollar is rallying into month end, these grains will start dropping like they were doing in May again.

 

US Dollar Intraday Chart

The day after a negative USDA report, corn is hitting the 6.00-6.06 resistance that we have been showing for over a week. Strong cash basis was the excuse for today's rally, but I think it was the technical nature of the long bean/short corn spread that was vindicated yesterday but is now old news and went into profit taking. When July beans hit physiological support at 14.00, the continued liquidation of the spread sent July corn higher for a brief period today. If 606 is over come on a closing basis for two days, we will very likely see 630. That is a questionable feet , as the basis this late in the game seems to be the way they want to play out the end game with early planted southern corn that will be harvested in late July moving to who will ever pay the freight.
 

July Corn Intraday Chart

Yes, new crop beans are bullish and could maybe hit $15.00, but we have to be realists if it rains next week and the US dollar turns back up, we may not see new crop beans in the teens for awhile. Watch for an alert tomorrow if we do not fill overnight to change the price.

Hedge alert:

Sell 30% of new crop beans at 1328 basis the November contract.



 

November Daily Bean Chart

Wheat

September Minneapolis Wheat Daily Chart

  August Live Cattle Daily Chart

August Feeder Cattle Daily Chart

Gold

After flushing out last week's buyers in gold, another rally attempt at the down trend line is being taken. Closing over 1642  would create a target and a measured move up to 1670-1680.

Gold Intraday Chart

 

In spite of US dollar weakness, oil cannot climb above the purple line. I had projected the line would be down to 84.25 by Wednesday and the actual market high today was 84.01 before turning back down. Tomorrow the line should be down to 83.65 and 83.00 by Friday. So as you can see, either oil breaks 81.00 or we will be getting a reversal back up soon. I think we will  break lower.

 

                                                          Crude Oil intraday Chart

06-11-12

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.   Heartland Advantage Ask about our State-of-the-art order entry software with LIVE quotes and charts! Free to all active clients of Heartland Investor Capital Management, Inc. 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. Newsletter provided by Heartland Investor Capital Management, Inc. a registered CTA with the NFA, of which Eugene Graner is principal. This entity is a separate legal entity from the Introducing Broker Heartland Investor Services.

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