The corn and wheat dilemma

by Gary Kamen

Last week July corn opened at 754 and closed the week at 787. July wheat opened last week at 772¾ and closed the week at 759¼. We saw that the WASDE report released this past Thursday was bullish corn and bearish wheat. There is definitely no problem with wheat supplies both worldwide and here in the United States. Here in the United States, supplies are above the 10-year average. Not so for corn. The increased consumption by China is keeping corn prices high. China grows 46% of world stocks and will not be exporting corn. Increased production by China does not come close to their increased consumption.

Last week July corn opened at 754 and closed the week at 787. July wheat opened last week at 772¾ and closed the week at 759¼. We saw that the WASDE report released this past Thursday was bullish corn and bearish wheat. There is definitely no problem with wheat supplies both worldwide and here in the United States. Here in the United States, supplies are above the 10-year average. Not so for corn. The increased consumption by China is keeping corn prices high. China grows 46% of world stocks and will not be exporting corn. Increased production by China does not come close to their increased consumption.
 

COT Data

On the Commercial Tracker below you see that Commercials had a slight drop in net-shorts and an increase in net-longs in wheat. With July corn almost 30 cents higher than wheat, livestock feeders could decide to replace a large portion of corn with wheat to bring down costs, increasing wheat demand and decreasing corn demand. If corn continues moving higher, there is no doubt that is exactly what will happen, so keep an eye on September (old crop) and December (new crop) corn. If we see new crop strongly moving up, you will want to keep an eye on how the feed market responds, especially because meat prices have come down. 

Commodity	12-mo low	12-mo hi	10-Jun	3-Jun
Cattle (feed)	-1,290	7,100	4,683	4,038
Cattle (live)	-73,179	2,046	2,046	-2,028
Hogs	-35,979	19,456	19,456	18,152
Corn	-413,915	119,389	-387,283	-395,045
Oats	-7,738	-867	-4,990	-4,554
Soybeans	-203,260	29,118	-112,280	-100,113
Soybean meal	-90,487	-32,915	-66,035	-47,366
Soybean oil	-117,444	32,394	-87,714	-74,009
Wheat	-32,577	74,161	15,534	3,103
Orange juice	-20,205	-6,588	-20,205	-19,463
Coffee	-47,729	-16,418	-16,418	-20,434
Cocoa	-41,808	8,586	-6,136	-9,605
Sugar	-221,694	-104,595	-123,748	-109,638
Cotton	-69,857	-12,970	-34,758	-36,258
British pound	-66,435	66,514	-7,171	-3,837
Canada dollar	-115,190	-13,109	-36,708	-59,332
Euro FX	-124,855	83,486	-59,176	-28,289
Japanese yen	-52,533	76,983	-12,461	8,687
Swiss franc	-42,387	23,460	-29,746	-33,121
US dollar index	-24,676	14,003	-5,517	-8,607
Mexican Peso	-140,414	-14,488	-96,395	-115,323
Australian dollar	-110,025	-10,793	-79,855	-78,193
S&P 500	-88,893	33,981	-55,890	-77,473
T-note -10 yr	-74,761	229,611	62,061	130,308
T-bond -30 yr	-43,324	88,803	6,676	10,601
Eurodollar	-1,179,414	81,781	-392,482	-261,942
Crude oil	-319,669	-25,439	-207,579	-219,619
Heating oil	-66,097	7,568	-45,946	-40,255
RBOB Gasoline	-85,987	-10,453	-62,224	-57,944
Natural gas	109,696	228,910	109,696	130,610
Copper	-36,201	1,793	-8,548	-7,533
Gold	-302,740	-193,197	-247,684	-240,508
Platinum	-34,909	-15,759	-27,239	-25,318
Silver	-65,413	-33,328	-33,328	-34,323

Commercial Net Tracker instructions: This form tracks the Commitment of Traders (COT) data for the commodity futures market. This form "looks" at the most recent five weeks of COT data and provides visual indications of the data. A) If the current value is at a 12-month low, the cell will display a red/burgundy background. B) If the current value is at a 12-month high, the cell will display a green background. C) If the current value went from net negative to net positive, the cell will display a blue background (indicating a bullish condition). D) If the current value is both a 12-month high and also went from a net negative to a net positive, the background will be green. You should view the data with green backgrounds to determine if they also went from net negative to net positive.

If you need help understanding how to understand how to use the COT report to your benefit, please email me at Gary@crbtrader.com and put COT report in the subject line. Please include your name and telephone number in the email.

Fundamentals

Corn prices surged to an all-time nearest futures high of $7.93 a bushel after the USDA lowered its U.S. corn production estimate and cut its U.S. and global carry-over estimates.

Bullish factors include:

1. The USDA’s June 9 cut in its U.S. corn production estimate for this year to 13.2 billion bushels from last month’s estimate of 13.505 billion bushels as wet weather cut planted acres to 90.7 million from a May estimate of 92.178 million.
2. The USDA’s June 9 cut in its 2011-12 U.S. carry-over estimate to a 15-year low 695 million bushels from a May estimate of 900 million and the cut in its global corn carry-over estimate for 2011-12 to 111.89 MMT from a May estimate of 129.14 MMT.
3. IGC’s prediction that global corn inventories will fall to 111 MMT in 2011-12, or about 13% of consumption, the smallest stocks-to-use ratio since 1974.

Bearish factors include:

1. Speculation that livestock producers will switch to wheat from corn for their feed needs as the price of wheat has fallen to its cheapest relative to corn since 1984.
2. The USDA’s May 11 cut in its 2012 U.S. corn export forecast to 1.8 billion bushes, a nine-year low, as record high prices erode foreign demand.

Wheat prices fell to a three-week low, but remain within a wide six-month $2.37 a bushel range.

Bearish factors include:

1. The USDA’s June 9 hike in its U.S. winter wheat production estimate to 1.45 billion bushels from a May forecast of 1.424 billion.
2. Harvest pressures after the USDA reported that 10% of the U.S. winter wheat crop was harvested as of June 5, higher than the five-year average of 6%.
3. The resumption of Russian wheat exports starting July 1.

Bullish factors include:

1. The USDA’s June 9 cut in its 2011-12 global wheat production estimate to 664.3 MT from 669.6 MT in May along with the cut in its U.S. carry-over estimate to 687 million bushels from 702 million in May.
2. The prediction from Shanghai JC Intelligence that China may double its wheat imports this year to about 3 million tons as drought cuts its wheat output this year to 96.5 MT, below the 115.5 MT predicted by the USDA.
3. The action by the IGC to cut its global wheat production estimate for this year to 663 MMT from a May forecast of 667 MMT.

See the original article >>