Technicals and fundamentals collide as grain market seeks direction

It is crunch time in the grain marketing business.

This is the time of year when market factors collide to give us the direction that normally carries grain prices through to harvest.

This is the half of June where the highs are made a lot of years, just before that mythical July Fourth.

This is when the crop conditions meet the long-term forecasts and the supply and demand expectations start to dominate fundamentals.

Indecision

This is the time of year when decisions need to be made, but the pain of those decisions can freeze producers into inactivity that will haunt them later.

The gambling stocks in the bottom of the last two bins need to go to town, but there is all summer to worry about that, right?

What if the high comes in August? It does, in one year out of 10 or 20!

Field reports

Producers in northeast Ohio are out walking crops, thinking that the great expectations of two weeks ago seem to be evaporating faster than the continuous rain patterns have been.

Lower bean leaves are firing up yellow. The corn, which was notable two weeks ago for the beautiful stand, now looks mostly just yellow. The nitrogen has not been top-dressed because of wet field conditions. The alfalfa is blooming, and needs to be knocked down, but rain is forecast.

Amidst this uncertainty about price is the news that we might just have planted 4 million acres less than expected in the USDA Prospective Plantings Report, out March 28.

This should be seen as fairly bullish, and the crop condition is bullish, if our local situation is as general as it seems.

This makes it hard for farmers to get excited about new crop bids that are below $5, especially since the recent expansion in corn acres has contributed to corn costing nearly that much to produce.

If the sun shines, the crops can still be great, and the market is still right. If the high of the year comes the last half of June a lot of years, we are there. It may not seem like a high price, but it is the one we have!

Check the charts

When we are confused about the fundamentals, we can look at the charts, and try the technical side.

The charts right now make me think that the fun may be over.

The July corn futures chart shows a sideways pattern between the June 7 high at 6.74 and the June 13 low of 6.401⁄2. Monday we had a big day in the July (but not in later months) and got us back to 6.72, close to the high.

We are now trading at 6.683⁄4 on Tuesday morning. It is encouraging that we are at the top of the range.

It is intriguing that we are knocking on the door of closing the report gap made March 28 when the acres were estimated by USDA. That gap goes from 6.571⁄4 to 6.76.

Corn charts almost always fill the gaps. This one is filled enough to fulfill that axiom, or we could completely fill it, or we could blow through the gap on some momentum I don’t see yet.

By the time this column is in the hands of the producer we will know.

The July soybean chart is different. There, we have shown a significant uptrend for two months. That uptrend is showing weakness.

The recent low was back in the middle of April at 13.361⁄2. The high was just last week, at 15.583⁄4 on the 12th. Now we have had a three-day break, and are trading 15.18 this Tuesday morning.

Struggling with spreads

The most difficult job for the technician this year is struggling with the inverted spreads. Once again, the lead month July is higher than the next month September. This has been true each time we have transitioned to the next contract, only it keeps getting worse.

This time, it is not 20 cents, but 90 cents. It has been as high as a dollar.

Normally with futures, there is convergence where the one price melts into the next. This year we have experienced a breakdown in the delivery system that underlies the futures process.

On first notice day, which will be Thursday the 27th this time around, futures contract become cash contracts. If you are short the lead month, you can actually deliver cash grain to delivery elevators.

For the last few years, those elevators are along the Illinois River, and that an area that was devastated by drought last year. Thus, there is not corn at a normal basis within reach of those elevators that can be delivered.

Old crop party is over

For the last week, I have been telling farmers that they cannot risk the spread. I cannot with a clear conscience talk people into selling $5 corn for March, although that may end up being a good sale.

I can say that the party is over for the old crop beans and corn. The corn has to be sold while a buyer will still price it against the July contract.

In 10 days, we have to be out of July futures in my business. I don’t see any way we will be bidding a dollar over September futures for corn this next month.

Yesterday I actually got out of all my July futures, so I am putting my money where my mouth is.

Soybean processors have already switched bids to being versus the August soybean futures. They may go right to the November shortly.

About the Author

Marlin Clark trades producer and elevator grain from an office near Andover, Ohio for Town & Country Co-op. You can reach him for comment at 440-293-4055. More Stories by Marlin Clark

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