Market Analyst: A wavering market

Ray Grabanski
Special to the Farm Forum

The market is wavering, as if it's teetering on the top of a cliff.  Of course, we don't know which side it's going to fall on, but it's certainly going one way or the other.

There is a bullish forecast of warm and dry weather in June, but that isn't very threatening. In northern areas, warm weather is good early in the season to get things growing. But dryness isn't good with it, especially for spring wheat areas that haven't recently received rain (which is most of the U.S. spring wheat area).  But for corn and soybeans, if this weather lingers into July and August like it did in 2012, get ready to see the upside.

But if weather improves to wet and warm from here, then beware the downside.

Today, there is rain in parts of Montana, North Dakota, northern Minnesota, Texas, Oklahoma, Arkansas, Alabama and Mississippi, with a surprising storm that brewed up across eastern North Dakota and northern Minnesota, dropping some decent precipitation in some areas.  

That didn't seem to deter overnight trade (nothing ever seems to), as the market rallied 

from the get-go despite a 64 cent downside reversal in spring wheat yesterday and a downside reversal in July soybeans and corn, which is a divergence between July and new crop corn and soybeans (old crop diverging downward while new crop is diverging upward).

When the old crop is no longer rallying while new crop is, it means prices are high enough to allocate the short supply.  If no one wants to buy the product at the price anymore, does the supply still matter?

Another hypothetical question: If weather is so bullish, why are funds selling at stronger openings every day? Night trade the past few weeks has been higher every night, only to reverse most days or sell off from the opening. Why?  

Crop progress showed corn and soybeans are virtually all planted (and replanted), with corn 72% good/excellent (down 4% from last week).  The Pro Ag yield model dropped 1.62 bushels per acre to 177.71, now only 1 bushel per acre above trend yields.

Soybeans first crop rating was 67% good/excellent, down from 72% last year as frost damage was still being assessed (and killed replanted soybeans).  Pro Ag yield models for soybeans start at 49.38 bushels versus the trend 49.83 bushels, but it's still a preliminary yield, as many years did not have enough soybeans planted for comparison.

Early planted crops yield better usually, and this year is an early planted corn and soybean crop.  Winter wheat continues to improve, up another 2% to 50% rated good/excellent, now just 1% below last year, despite a severe winter and dry start.

Yield models suggest 51.69 bushels per acre (up 0.13 bushels from last week) versus 50.56 on trend. Drier weather in winter wheat country is beneficial, as its been very wet there recently and soils need to dry out before harvest starts.  

The devastation continues in spring wheat country, as ratings dropped another 5% for spring wheat and barley ratings (now only 38% of spring wheat rated good/excellent).

Oat ratings dropped 9% to 46% rated good/excellent, a dramatic drop as well.  The only 

problem is that Canadian spring wheat areas received their best rains this spring on Sunday and Monday and will help to alleviate drought there where two-thirds of spring wheat in America is planted.

Topsoil moisture levels in the U.S. declined 5% last week, with subsoil down 1% for the first decline of this spring, reflecting the hot/dry weather of last week and weekend.  

It's the moment of truth for grains: will they run to new highs (like spring wheat did) and maintain them? Or has the market already topped, and the divergence in corn and soybeans and downside reversals yesterday in spring wheat, July corn, and July soybeans along with selloffs every day in day trade a sign that smart traders are getting out?  We note that export shipments are slowing (even in corn), with soybeans and wheat almost dried up.  

Is anyone left to buy these overpriced grains?