On The Money Grain Commentary 1-16-14

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Corn Outlook:

The bleeding in corn since last August has finally stopped complements of last week’s bullish surprise in the January Crop Report.  However, traders have raised eyebrows regarding USDA’s increase in feed consumption because of the cattle herd that is at a 60 year low, and the outbreak of PED (porcine epidemic diarrhea) virus in hogs.  Export inspections were at the upper end of guesses at 20.9 MB, but below the average needed to reach USDA’s projection of 1.450 BB.  At the current pace, shipments are on track to fall 50-100 MB short of their target.  In other developments, the trend following funds trimmed 95 MB from their short futures position reducing it to 775 MB.  Now that the January Crop Report is history, traders will focus on South American weather, planting intentions this spring and longer-term weather forecasts.

March corn bottomed last week at 406.25 where an intermediate-term low developed.  This was followed by a rebound to 435.5 on Monday where prices backed off.  Support is expected at 421-417.  So far, the pullback resembles a correction which means that higher prices are likely once it is done.  Unless we fall to a new low, a rally past 435.5 projects the market rising to 450 with 460 probably the extreme.  This could occur as soon as January 22nd, but likely closer to January 29th.  At that time, the chances are for a test of 406.25 again.  Seasonally, corn futures tend to work lower from January until the end of February.  Whether a new low develops is still a work in progress.  Next week, the odds are even as to whether March corn will be higher or lower.

Bean Outlook:

     Soybeans got a boost this week from hot temperatures in Argentina and strong export inspections of 59.3 MB.  China still has interest in U.S. soybeans as they took 43.5 MB or 73 percent of shipments.  However, the pace of shipments continues to decline from their peak in November.  While traders are concerned about stressful temperatures in Argentina, a cooling trend with the potential for rain is expected this weekend.  In the meantime, conditions are favorable in Brazil with the expectation for a record crop.  Currently, global stocks-to-usage are at 26.6 percent and in the upper third of the twenty-year range, which implies that supplies are abundant.  In other developments, the trend following funds whacked 135 MB from their long position reducing it to 445 MB.  This may allow for more upside price strength short-term.

      March soybeans spurted higher from Monday’s low at 1266.5 to 1330.5 on Thursday for a gain of 5.0 percent in four days.  Look for additional resistance at 1339 with support expected on a setback to 1298 or 1282.  If you will notice on the chart, a wedge type formation is unfolding from the high at 1377.25, the low at 1233.25, and the high made last month at 1339.25.  Usually, the direction of the breakout is in the direction of the existing trend, which, in this case, is down.  Although the seasonal tendency is for a decline through the end of February, the market may remain range bound for some time.  My thinking is that we will probably not see a downside breakout until soybeans harvested in Brazil reach port and are in a position to be shipped.  At that time, cancellations from China could occur.  This seems reasonable as they do not want to be caught in a logistical nightmare similar to the one last year.  Meanwhile, if 1339.25 is exceeded, an upside breakout is taking place with the high at 1377.75 being the next level of resistance.  Next week, the odds are even as to whether March futures will be higher or lower.

 Wheat Outlook:

Last week’s bearish report in wheat caused the bottom pickers to scramble, but the market has since recovered supported by Egypt’s purchase of 55,000 tons from the U.S.  Although it is not a big amount, after a month long trashing of prices, any help is welcomed.  Export inspections were better than expected at 25.1 MB and above the average needed to reach USDA’s projection of 1.125 BB.  This was the best inspection number reported since October.  Meanwhile, the trend following funds remain heavily committed to their short position that currently stands at 510 MB.  The bears should take heed.

March wheat bottomed last week at 560.5 which appears to be an intermediate-term low.  This was followed by a rebound to 580 on Tuesday.  A period of consolidation is likely for the next several days with the chance for a recovery to 590 or 605.  The correction could be complete as soon as January 22nd, but it may be closer to January 29th.  Once is done, the wave pattern points to a sell-off to 535 or 522 which should end the long-term sell-off from the contract high at 912.75.  This may occur around February 27th.  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.