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Fund short covering has been the primary factor supporting corn. Last week, the trend following funds bought a staggering 180 MB reducing their long position to 185 MB. Since early January, they have liquidated 685 MB. Meanwhile, additional support has come from wintry conditions in the Midwest which has hampered grain movement. Corn sales have been brisk the past few weeks giving the bulls encouragement. While sales have exceeded expectations, shipments are lagging the pace needed to reach USDA’s projection of 1.6 BB. Tomorrow, the USDA Ag Outlook Conference will release a preliminary 2014 statistical forecast for the grains. This will give traders an insight to USDA’s expectations for planted acres and yields this spring. Keep in mind that tomorrow’s report is based upon statistical models rather than producer surveys.
July corn has been in a recovery since bottoming in January at 421.75. Normally, corn futures work lower from mid January into the end of February, but that has not occurred this year as a counter seasonal rally has developed instead. Last week, the market fell to 448.25 that has been followed by a three day rebound. The short-term wave pattern shows the potential for rising to 473 with 480 probably the extreme. This could occur by the end of the week and no later than February 26th. After the recovery is complete, one longer-term pattern points to a sell-off to a new low. However, the chance of it happening is diminished in the event of a close beyond 473. Next week, the odds are 60 percent that July corn will be lower.
Recent hot, dry conditions in Brazil have reinforced the bulls contention that soybean production may fall below expectations from a few weeks ago. That was highlighted this week when AgRural lowered their production estimate 1.8 million tons to 87.0 million. Meanwhile, the heat in Brazil is dissipating and wetter conditions are forecast which will aid development. Additional support underpinning soybeans is the lack of sales cancellations from China. Traders have assumed that 2-3 million tons would be cancelled which has not occurred as of yet. However, the cancellations may come when South America is further along in their harvest. Weekly sales continue to be robust and the pace of shipments reflect that the USDA may have to raise their export estimate 30-40 MB from the current projection of 1.510 BB. In other developments, the trend following funds added 165 MB to their long position last week increasing it to 775 MB. This is their largest position since September 2012.
July soybeans set a low in January at 1234 that has been followed by a rally to 1339.5 on Wednesday for a gain of 8.5 percent. A downside reversal occurred at Wednesday’s high suggesting that the recovery may be done. Currently, the market is at its most overbought level since June 2013. However, the trend indicators are still pointed up and in order for a top to be confirmed, a sell-off below Thursday’s low at 1315.75 is needed. In that event, a pullback to 1286 or 1274 is expected. Otherwise, a rally past 1339.5 projects a move upward to 1356 and possibly as high as 1378 with a top probably by February 26th. Next week, the odds are 60 percent that July soybeans will be higher.
Wheat has been following corn and wheat, but is also supported from purchases by Brazil and concerns of winterkill in the Plains and Midwest. Although world stocks are lower, they are ample to meet demand. Export sales and shipments remain on track to reach USDA’s projection of 1.175 BB and could possibly exceed it. Another factor underpinning wheat is liquidation of short positions by the funds. Last week, the trend following funds shed 40 MB reducing their shorts to 410 MB. Since December, their short position has fallen 110 MB from the record of 520 MB.
July wheat has been rising since it bottomed in late January at 557.25. Prices rose to 618 on Thursday and should meet resistance at 624. One pattern on the weekly chart shows that when the recovery is over, there may be a sell-off to a new low. Seasonally, there is a strong tendency for wheat futures to decline from mid to late February until the end of April. However, in the event of a close beyond 624, the chance of trading to a new low is diminished. A bullish pattern is likely developing instead in which prices could continue upward to 634 or 652, and possibly to a higher level later. Next week, the odds are 80 percent that July 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.