The US Dollar Index has been stuck in a sideways trading range for about six weeks. The Index keeps testing trend line support and the trend line keeps holding. The Gold market is back to testing $1000/oz. The gold hasn’t been able to move very far past $1000, so both the gold and the Dollar at price levels where a turnaround in the market could be expected. However, if the Dollar and Gold don’t turn around here it would mean the Dollar is starting another leg lower and the gold is headed for all time highs. Next week’s trade will be very important and have an impact on a number of markets. Natural gas fell to new multiyear lows and the crude oil – natural gas ratio is reaching historically wide levels. The problem, still, is that there is a great deal of carry in the natural gas market, so we can’t take advantage of the low prices.

Trend: Short Term Down – Long Term Down
Sentiment: New lows.

The December corn lost another 23 cents this week, primarily because we went another week without any kind of threatening weather forecast and also because private analysts are coming out with bigger, and bigger yield estimates. Informa now thinks that if all goes well for the rest of the growing season 168 bu/ac is possible.

Not everyone thinks we will see a record yield. I read an article about a firm called Lanworth that thinks the yield will end up being the 3rd highest ever, which would be less than 153.9, but they are definitely in the minority right now. I think we have to plan on a higher yield number in next Friday’s crop report. There could be some better demand numbers and a lower old crop ending stocks numbers, but I don’t think there will be enough demand changes to offset the production increase. If there isn’t a weather problem soon, traders will start talking about an even bigger yield estimate in the October report. Right now everything is pointing to continued weakness and a normal harvest low sometime this fall.
Action: I like owning October corn $3.10 or $3.00 puts early next week.

Trend: Short Term Down – Long Term Down
Sentiment: New Lows

The December KW lost 26 ¾ cents this week. There isn’t much positive new that I can come up with and apparently no one else can either. Export sales were back to being poor with only 405,700 MT sold. I really don’t know why USDA increased the export estimate in the past two crop reports when we have really only had 1 or two decent weeks of sales. I don’t think USDA will cut exports this month, but I will not be surprised to see a cut in either the October or November report, unless we see a dramatic improvement in the export business.

I don’t think there will be many adjustments to the US wheat numbers at all. There is the potential for a slightly higher production figure, but I think most numbers will be left alone. There could be numerous changes in the world supply and demand numbers, but you never know when USDA will make them. Argentina and Australia could both have production estimates cut, so that is something to look for in the next few months.
Action: Own puts, sell calls. Look at selling December 2010 Chicago wheat $7.00 or $8.00 calls.


Trend: Short Term Down – Long Term Down
Sentiment: Harvest in the Delta

Harvest in the south is replenishing supplies and killing the basis and the September contract. The September contract dropped over $2.00 from last Friday’s high. The November contract didn’t fair quite that poorly, but did lose about 90 cents this week.

Demand is still very strong. New crop export sales were 1.11 MMT and we are on a record pace for the new crop year. USDA could increase the new crop export estimate, but they usually don’t get in a hurry about adjusting demand numbers this early in the crop year.

As for the rest of the supply and demand numbers, the biggest thing to look for is an increase in the yield estimate, which is another thing weighing on the futures. We are moving into the highest supply time of the year and it looks like that supply is getting bigger.
Action: Owning puts is a great idea, but you don’t want to commit any more bushels in the cash market. There is tremendous potential for a post harvest recovery due to the strong demand.

Trend: Short Term Down – Long Term Down
Sentiment: Has a bottom been made?

There was some $84 cash trade, which isn’t all bad, but the futures market still isn’t providing much confidence. The October LC did post a reversal higher on the chart Wednesday, but so far there hasn’t been much follow through strength. If we see new highs for the move early next week, then I think you can be comfortable buying live cattle futures are looking for a move up toward the $89.00 area. Otherwise, leave the long side of the market alone. The feeder cattle are in a similar situation. The market is due for some corrective strength, but I fear that maybe Wednesday’s bounce was it.