Corn futures rose sharply from mid December through early January amid concerns of dryness in South America and expectations that the January Crop Production and Supply-Demand report would be friendly. Emotions soared that heat damage to early-planted corn in Argentina is irreversible. Large traders turned bullish during this period, as the long position of the trend following funds grew 355 MB to 575 MB. Meanwhile, USDA dehorned the bulls and shook the bear’s cage this week with an unfriendly report. They project 2011-12 ending stocks of corn at 846 MB, slightly below last month. Traders expected stocks to be lowered to 750 MB. In the meantime, Argentina’s production was reduced 3.0 million tons, which was in line with guesses. Simply put, the bulls became overzealous with their expectations and are left with their jaws hanging!
March corn fell the 40-cent limit to 611.5 on Thursday because of the bearish supply-demand report handed by the USDA. Additional support is at 598 with resistance expected on a bounce to 630. Right now, it appears that the irregular correction mentioned in previous comments from the October low at 586, the high made in November at 676.25 and last month’s low at 576.25 is over. If this is the case, the risk increases for a sell-off below 576.25 to 530 or lower. From a seasonal perspective, corn futures generally trade downward from mid January until the end of February. Cycle analysis points to a bottom developing on February 1st or February 6th. However, it may be an intermediate-tem low. Next week, the odds are even as to whether March corn will be higher or lower.
Dry conditions in South America and expectations that the USDA would lower production prospects gave strength to soybean futures during the past month. During this time, the trend following funds reversed from a short position of 115 MB to one of being long 70 MB. However, the USDA delivered the bulls a jolt by increasing ending stocks for 2011-12 to 275 MB. Traders were expecting stocks to be lowered to 240 MB. Meanwhile, production in Argentina and Brazil fell 1.5 and 1.0 respectively because of dry weather. This report is definitely not what the bulls wanted to see!
March soybeans fell sharply to 1150 on Thursday because of the bearish USDA report. Last week, the market peaked at 1244.75, which ended the recovery from last month’s low at 1104.5. Resistance is expected on a rebound to 1195-1205. Longer-term, unless 1244.75 is exceeded, the market is a risk for a sell-off below 1104.5 to 1060 or lower. This will be confirmed by a decline below 1150. Seasonally, soybean futures tend to work lower from mid January until the end of February or the first week of March. Cycle analysis points to a bottom developing on February 1st or February 9th. However, it may be an intermediate-term low. Next week, the odds are even as to whether March soybeans will be higher or lower.
Wheat rode on the coattail of corn and soybeans higher from mid December into early January. During that time, the trend following funds trimmed their short position from a record 420 MB to 345 MB. However, the market was delivered a blow by the USDA this week when 2011-12 ending stocks were forecast at 870 MB compared to traders’ expectations of 842 MB. Meanwhile, winter wheat seeding for 2012 is projected at 41.9 million acres, up 3.0 percent from a year ago and compares to the trade guess of 40.8 million.
March wheat fell to 592 on Thursday breaking support at 624.5. Resistance is expected on a rebound to 620. Prices peaked last week at 670.75, which ended the recovery from last month’s low at 577.25. Unless it is exceeded breaking the series of lower highs and lower lows from the contract high at 994.75, the longer-term trend is down. Meanwhile, a decline below 577.25 projects prices falling to 550, 530 or 520. Seasonally, wheat futures generally trend lower until the end of February or the end of April. Next week, the odds are 60 percent that March wheat will be lower.
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Comments and suggestions are provided for information purposes only. Information contained herein is obtained from sources believed to be reliable but not guaranteed to its accuracy or completeness. Readers using the information contained herein are responsible for their own actions. No presentations can be made that recommendations will be profitable or that they will not result in losses. This information is neither an offer to sell nor solicitation to buy of the commodity futures mentioned herein. The writer may be trading in the commodities mentioned.