- Following Friday’s drubbing of the market on the back of the bearish USDA report and favourable US and world weather, we are not surprised to see something of a recovery to start the week as the market was extremely oversold and profit taking was going to be inevitable. From the information we can find Dec ’14 corn and Sep’ 14 wheat are the most oversold they have been since the economic crash of 2007/8. The soybean complex, now that it appears the old crop US balance sheet is largely resolved as well as expiry of the July ‘14 contracts, which holds the most downside in our opinion. The crop is entering the bloom phase this week and the critical pod formation phase begins in late July and August, and will require drier and sunny conditions for the crop to flourish. This is exactly what is on offer in the current forecast. Any meaningful rainfall in August, once pods are set, will likely ensure a record large 2014 US soybean crop.
- The release by the CFTC of the latest fund positions (forwarded) shows heavy net shorts in soybeans and wheat but the funds maintain a net long in corn. We remain surprised at the fact that the funds continue to hold onto losing net longs in corn.
- There have been reports of further escalation of the Russian/Ukraine tensions as a rogue shell is reputed to have killed a Russian citizen and Russia has promised retaliation. Whether this will influence grain prices, or not, remains to be seen.
- Regardless of any market bounce to counter the current oversold position it would seem that prices will struggle to hold onto any meaningful gains in the face of large US and world supplies, which appear to be just around the corner. It must also be borne in mind that new crop sales by US and world growers are limited, and any uplift in prices will likely be capped by an avalanche of sellers queuing up to book bids.
- The new crop soybean/corn ratio remains high at 2.8:1, and also suggests to us that soybeans will be the downside price leader.
- The market is awaiting crop condition reports later today, and expecting condition to be no worse than last week and hopefully better.
- Is today’s price recovery a “dead cat bounce”?