Corn and Wheat at record lows! Is it time to buy?

Crops had a few very rough weeks behind and Wheat hit historical lows while Corn was very close to lows of 2009. Last week the market didn`t react to the heat wave forecast in the US for the coming week but historic lows may seem to be an opportunity to catch the bottom. However don´t forget it`s always dangerous to try to catch the falling knife. Let`s take a look what`s behind the sell-off…

Wheat

USDA projects record yield for winter wheat at record high of 53.9 bushels per acre, 11 bushels higher than last year. Spring wheat yields are slightly above average. If these numbers hold, the wheat production could be 19% higher than the year before. The export demand looks quite good, raised by 25 mil. bushels to 925 mil. which would be the highest the last 3 years, however ending stocks forecast is the highest from 1988 at 1.105 mil bushels. Foreign production was raised 2.7 mil. tons and the effect of good weather conditions almost in all parts of the world couldn’t be offset by the damage caused by the rain in France and drought in Algeria. Very strong supply supported with almast perfect weather is reported from Russia and Ukraine. Unless we will see any supply disruption, huge stocks and expected high yields will probably weight on the price of the wheat.

Corn

In the last WASDE report the Corn production for 2016/17 is projected 110 million bushels higher reflecting the increased planted and harvested areas from the June 30 Acreage report. Despite the decline of Brazil corn production due to early end of raining season in central Brazil, the increased exports still could not offset the rising ending stocks which are projected in US  73mil bushels higher. Global ending stocks are projected at 3.3 mil tons higher mainly increased by Chinese stocks.

Main reasons behind the current negative records:

• Oversupply due to favourable weather conditions in most of the world
• Expected record harvest in US
• Strong dollar

What could change the outlook:

• Traders are closely watching the developing El Nina effect which is delayed. The colder weather with more rain fall expected to hit in mid-August, can cause big losses in key production areas in the US.
• Weaker USD

What to watch in the coming weeks:

• Weather report in key production areas in the US
• Next USDA WASDE report on 12^th August where we should be looking for sign of easing supply or increasing export. However, some analysts are expecting the USDA will raise yields on corn which will add to bearish bias
• COT report, which can give a hint whether the big players start to cover their shorts
• Calendar spread tightening, as if the demand is increasing it often pushes higher the closer delivery leaving behind the longer contracts. And if the contango turns into backwardation, a strong bull could be very close...

Watch your risk and be consistent!

Mr. TechMan

 DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading       teams view on past and current economic and capital market environment. It is not and shouldn´t been viewed   as an investment advice and the creator of this material shouldn´t been hold liable for any loss resulting from       action where despite this disclaimer someone would consider this material  as an investment advice.