"Smiles are the most contagious emotional signal of all,
having an almost irresistible power to make others smile in return."
-Daniel Goleman
Commentary
President Obama met with Secretary of Agriculture Tom Vilsack this morning to discuss the administration's response to the drought, which made some corn traders nervous in light of the possibility of a cut in the RFS mandate. Market focus seems to be shifting ever so slightly towards reckoning with signs of demand destruction, with latest ethanol reports showing reductions, but that focus will quickly shift back to weather if showers in the ECB over the next couple of days disappoint.
It is important to watch now how analysts are interpreting corn yields/production and some focus on yield while others focus on production. The focus should be on production, which is a combination of yield and harvested acreage. Many crop forecasts of late that are not clear as to whether or not they're talking about yield at the current harvested acreage, or yield at a lower harvested acreage figure. For example, some traders say that US corn yield is now below 130bpa, noting the larger than normal number of fields that will be zeroed out. That kind of comment is inaccurate as zeroed out fields that go unharvested will NOT affect yield, but rather harvested acreage.
US corn production is likely somewhere in the 12.2-12.5 bil. bu. area at the moment, with a bias lower pending future weather, vs. the latest USDA forecast for 12.970 bil. bu. The current USDA demand forecast of 12.720 bil. bu. is also likely headed lower and would appear to have some room to cut, primarily from the feed/ethanol accounts.
The bottom line here is that there is certainly some risk in the consensus forecast for just scattered, light showers being wrong, but as it the case in grain trading, let the "trend be my friend" until proven otherwise. If recent trends continue, rainfall over the next 48 hours will disappoint and we'll put new highs in by early next week at the latest. Of course, some would argue that even the rainfall totals suggested by these models won't make a big difference in crop conditions unless followed up by further rainfall, but market tops often are made on what most would think are less than ideal amounts of rain. This is why I think a high for corn can be in early next week. If not then before July ends.
US Dollar Daily Chart
Corn
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Corn did another 3 wave correction, which is bullish and held support. New highs should be tonight, with the September contract challenging 8.00 in the overnight. 30 cent swings intraday can be the norm here at these levels. I think 820 is seen by Friday, which makes next week Monday likely to see 8.50 plus corn. This is why I think we are getting close to the end game. Get ready to sell.
Dec Corn Intraday Chart
Beans
Monday I said "August 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." I doesn't take a rocket scientist to figure out August beans will be trading 17.00 likly tomorrow. 18.00 plus is my target for spot beans.
Monthly Bean Chart
Wheat
Corn is stair stepping corn. 9.00 corn gives us 11.00 spring wheat.
Minn Wheat Weekly Chart
Live Cattle and Feeder Cattle
Cash cattle traded $111-113 yesterday, but were very quiet today. Choice beef is trading in the $184.50 area, and packer margins are back to a positive $13 per head. There were a lot of "Johnny-come-lately" shorts in the feeder cattle that scrambled to get out of their positions, pushing them up the $3.00 limit.....quite surprising, given that corn rallied over 25 cents off its morning low. It will most likely get worse for cattle before it gets better, but as we get into next year, supplies will become extremely tight.
September Feeder Cattle Daily Chart
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
We are rolling to the September crude oil chart so the numbers change a bit. Resistance on this contract is 93.00-94.00 which should stall or stop this current rally.
September Crude Oil Daily Chart
07-16-12
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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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