Grains June 25

The price action in wheat has been terrible for the bulls. Since the WADSE, July prices have come down nearly $2 and December prices have come down about $2.25. As of Tuesday last, the commercials were in sole possession of the longs, holding them at levels last seen in the last two weeks of last November. Similar, and higher levels were held last summer. In both instances prices moved up $2 or so. And, for what it is worth, December prices are camped out on the normal move target, right at $7. I’m not so bold as to assert that prices will go up from this moment on, into December, but I’m certainly of the opinion that the next big swing is up.

There has been blood spilled in the bean market as well, with prices of both July and November down about $1. Commercials were at their shortest of the past three months going into the WADSE, but nowhere nearly as short as they were in January and February. It seems that beans are going along for the ride.

Who is driving? Corn, as everyone knows, is driving. The two largest corn producers are the US and China. I’m still of the opinion that the Chinese corn crop will be hugely reduced by the massive flooding across about half the growing area. However, to the extent possible and economic, lower quality wheat will be substituted for corn in livestock feeding, the main use of corn in China. The commercials reduced their shorts going into last Tuesday, and likely did so again this week as prices continued to fall. We are still looking at funds being very long and commercials being very short, so no inference is available – except for those of the old time book writers who contend corn must go down. Of course it must, unless it doesn’t, and we have seen this level of commercial shorts since last August. December prices are down about 80¢ since the WADSE and July down about $1.15. None of us expect July prices to recover in the next two weeks; December seems likely to move up, according to how crops actually do.