"If you want something done, ask a busy person."

-Benjamin Franklin

There is no question the corn crop is starting to look like a catastrophe for US agriculture with the goal of the market to change US policy on ethanol.   ARC research outlined last week that any change to US Bio Fuel policy won't come fast or be easy. For instance, EPA is the only one that can change the mandate, but before that occurs they will want confirmation of a sharp fall in 2012 US corn yields/production from NASS. That will not occur until August or September Crop reports (at the earliest). And then the politicians will have to gauge whether they are willing to accept higher food costs or fuel costs? Cutting US ethanol production by 25% would raise demand for unleaded and thereby raise the costs of gasoline-something that politicians do not want to occur prior to November! We bet that if change in US bio fuel policy occurs that it's the corn market that will have to force the issue before the US Presidential election. This is why corn values are likely to score new historic highs.

The midday GFS model is little changed in its outlook for the next 5-7 days with rains occurring across the southern third of the US with warm/dry conditions to the north (Midwest and N Plains). High temps will range from the 80's to lower 90's. There will be a few hit and miss showers, but nothing in terms of a meaningful rain for Midwest crops.  The 6-10 day forecast is slightly wetter from OH/IN and left over moisture pushes northeast across the area from the Delta. Rain totals are estimated in a range of .1-.6" with a few locally heavier amounts. The remainder of the Midwest is expected to stay generally dry, expect some rain that will leak into KS and MO. The extended 10-15 day forecast calls for a NW upper air flow as the Ridge builds westward. This would create a cooler upper temp profile with near to below normal rainfall.

Private crop estimates are falling everywhere as traders await Wednesday's USDA S&D update. Some of the more influential analysts expect the USDA to make pretty drastic cuts in yield, but perhaps not as low as current trade thinking. On Friday, Informa Economics said US farmers will harvest 13.641 billion bushels of corn in 2012 and a US soybean crop of 3.161 billion bushels. Informa also estimates corn yields at 153.5 bushels per acre, based on harvested acreage of 88.9 million acres. Soybean yields are estimated at 42 bushels per acre, based on harvested acreage of 75.3 million acres. Informa's corn yield is 1.4 bushels below its previous forecast, but almost 10 bushels below Informa's early season yield forecast. The July 1 soybean yield at 42 bushels an acre is down 0.7 bushel from Informa's previous forecast and would be 0.5 bushel above last year. Satellite analyst Lanworth says final planted acreage totals will fall 1.2 million acres in corn and 0.4 million acres in soybeans from the June USDA estimates, both of which are not all that surprising as the USDA has a strong track record of overstating acreage in the June report.

While the trade is focused almost solely on production losses, some analysts are already talking of significant reductions in demand, particularly from corn. A report over the weekend from analyst Bill Gary of CIS, Inc., stated that the USDA has tended to be extremely optimistic in their production and usage estimates this season. However, they will be forced to reduce yield in the upcoming supply/demand report on July 11. Our 2012-13 estimate is based on what we consider more realistic production and usage estimates. Although our production forecast is a significant 1770 million bushels below the USDA, our ending stocks estimate is 85 million bushels above the USDA's forecast for the current season. Last week, the International Grain Council (IGC) reduced US corn production by 5mmt, but increased China by 6mmt. Therefore, if their forecast proves near correct, US export demand may be even lower than our current forecast of 1800 million bushels. It is important to keep in mind corn export demand is easily rationed. Importers have alternative sources of feed such as South American corn, Australian, Russian and Ukraine feed wheat as well as other alternative feed grains. Also, current corn prices are already rationing ethanol demand in the US, the largest segment of US corn usage. Therefore, our studies indicate prices near $7.00 should ration usage to our latest production forecast. Note that Mr. Gary's forecast is based off of a yield of 148.2bpa and further cuts in yield would also likely raise his price needed to ration demand.

The market is looking for another 6-8% decline in weekly ratings this afternoon and will react accordingly tonight/Tuesday before bracing for Wednesday's S&D report. The report could largely be a non-event as the USDA is highly unlikely to cut yields as quickly as private sources, which currently have corn from 145-150bpa and soybeans at 41-42bpa. What will be interesting is to see where the USDA begins cutting demand, with corn feed likely to see the largest amount of cutting. 


 

US Dollar Daily Chart

The gap that corn left on July 5^th does look like a mid-way measuring gap, and as long as it stays open through any shake-an-bake correction this week, it measures to 8.50-9.00. That makes sense, because we have been near $8.00 twice in history and the current situation seems more acute, that it would imply an emotional run to 9.00, with a level off at 7.50-8.00 to ration demand. Setbacks will find major support at 690-705 if we back and fill.

Corn Daily Chart

Like corn, the bean break away gap measures 17.00-17.50 if the gap holds. With double crop beans eventually being slashed from balance sheets, late July weather could end up creating the $20.00 price that was predicted by many in 2008. Sales for 2013 crops will be encouraged if this market goes vertical late in July. Support 1490-1505.
 

Daily Bean Chart

Wheat

Wheat rallies until corn stops going up. 985-10.00 should cause pause in the market because that will match corn at 7.75-8.00.

September Minn Wheat Daily Chart

  August Live Cattle Daily Chart

August Feeder Cattle Daily Chart

Gold

Not much to report other then gold is a pinball machine bound by 1610-1615 on the topside and 1545-1550 on the bottom side. A break out is soon to occur.
 

Gold Daily Chart

 

Crude oil found support before testing 81.00-82.00 support we thought would be re-tested first.. The rally that oil is doing is a bear market bounce. Lower prices will still be seen. Here is a excerpt from an article from the Wall Street Journal this past week.

  "This confirms what I've been saying for months: the Fed has realized that the consequences of QE (higher cost of living) outweigh the benefits. This is why the Fed only decided to extend its Operation Twist program during its June FOMC: the political climate in the US will not tolerate a large-scale move by the Fed unless a major bank collapses or some kind of systemic risk hits.

This means... that the primary prop underneath the US stock market and financial system (namely Fed intervention) is slowly being removed. What follows will not be pretty and smart investors should be taking steps now to prepare in advance."

This means a strong US dollar and lower crude prices. Eventually grain prices will re-set their crop short fall value and then succumb to this selling also, but from a higher value.
 

                                              August Crude Oil Daily Chart

07-09-12

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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