Crop Progress Report & Fund Activity

My Expectation For Tonight’s Globex Trade Is The Removal Of Wheat As Our Upside Price Driver/Leader

We see by the chart above a few key features: (1) Winter Wheat conditions rose 2 points–even with the deluge of recent rains–to the top of newswire trade estimates, to 66% on this afternoon’s report. (2) Spring Wheat planting increased another 25% in one week–another probable surprise to the trade given the recent northern plains weather pattern–to now hitting within 6% points of last year. (3) It would make sense to me that, given the struggle in soybean plantings continuing, the soy can still go higher with the corn & wheat for a while longer. But, as I talk about in the next section below, soybeans remain a “sell” if we can get closer to $9 on the board–either lead-month or new-crop. (4) The question the trade is asking itself right now, I think is this: “Can we catch-up on corn planting by June 1?” I think the trade will likely have a strong feeling for this as we head into the long holiday weekend; thus, a correction in corn–led by wheat–is a pull-back to get positioned for another push higher if we remain as wet as the weather models suggest in the next 10 days.

(a) Given that it was the wheat (hard red in particular) that created the big push higher today in percentage terms, I’m skeptical that the wheat can run any higher for now–and that recent longs will come in and liquidate. I’ll be watching for that tonight, and then to watch to see if this has a negative feature on the price action of corn. More specifically, it would surprise me if the July SRW Wheat were able to take-out the long-term downtrend line in the chart above after today’s update by USDA. (b) Let me be clear here, though: while I expect a pull-back led by the wheat, I am not of the view that the rally potential in the medium-term is ending. Far from it; the crop report today helps me feel even stronger than I did last week that we are headed into a weather market very similar to 1993…in that I expect flooded areas of the corn-belt to remain flooded all the way into June/July. Because of this, I am of the view that for corn and wheat, pull-backs are likely “dips” to buy; the monthly SRW Wheat Chart above shows that we made a fresh 3-month high today, and I think ultimately a technical objective is the wedge point from 3 months ago, up around the 200-Month Moving Avg of $5.30. (c) Given that we found fresh African Swine Fever in China today, and given the fact that tensions seems to be increasing between the U.S. & China as we head into next month’s G20 Mtg., I cannot feel the same way about soybeans in the longer-term. See the articles below relating to both ASF and U.S.-China trade. Relating to both of these, I am still looking over my shoulder, wondering if China won’t cancel some U.S. soybeans just to shake things up a little more–especially given that Brazil’s prices are working so much better for them now. END

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