For several weeks, weather in Argentina has been the hot topic in the corn market. The bulls are elated because of expected cuts in their production. Recently, private sources in Argentina lowered production prospects from 30 to 22 million tons. In the meantime, recent rainfall has stabilized the crop, but many believe the damage is irreversible. Right now, the bulls are encouraged that the rise in Argentina’s basis and weakness in the dollar will boost U.S. exports. Inspections last week were 35.1 MB and above the average needed to reach USDA’s projection of 1.650 BB. However, the cumulative pace of shipments is running slightly below their target. In other developments, the trend following funds dumped 200 MB of their long futures position last week reducing it to 555 MB. Meanwhile, they added to their longs this week.
March corn has risen for six consecutive sessions since bottoming at 592.5 last week for a gain of 9.0 percent. Prices traded to 645.75 on Thursday and backed off creating a candlestick top. Last week’s comments mentioned that a top could occur on January 25th. Additional weakness is needed on Friday to confirm a high. If we are stronger instead, look for the market to climb to 653 and peak during the period of January 30th-February 1st. If you will notice on the chart, the market has traded in a sideward pattern since October. Unless there is a close beyond 664.25 and, especially 676.25, the longer-term trend is down with the potential for a decline to the lower end of the range again. During February, corn futures are lower 52 percent of the time. Next week the odds are 60 percent that March corn will be lower.
Soybean futures have been rising as traders are bullish that production prospects in South America are being threatened. However, they do not think that the damage is as extensive as corn. Private sources in Argentina estimate production to be down from 52 million to 46.2 million tons. Although recent rainfall has stabilized the crop, it has not deterred the bulls enthusiasm. In addition, prices are supported from the Fed’s decision to keep interest rates near zero through 2014. In other developments, export inspections were 35.6 MB with cumulative shipments running 38 percent behind last year. China took 25.7 MB or 72 percent of the shipments. Last week, the trend following funds dumped 55 MB of their long futures position reducing it to 65 MB. However, they were strong buyers this week.
March soybeans have been on the upswing since bottoming a couple of weeks ago at 1150. Right now, there are two patterns under observation. If you will notice on the chart, the first pattern shows a wedge type formation developing from the October low at 1173.25, the high at 1290, the December low at 1104.5, and the high made earlier this month at 1244.75. Under this observation, resistance is expected at 1238. A decline below 1208 suggests that the recovery is over and projects a sell-off to 1150 or below 1104.5. Meanwhile, the second pattern is more bullish in that if 1244.75 is exceeded, we are headed to 1290. The pattern that is unfolding should be cleared up by early next week. During February, soybean futures are higher 58 percent of the time. Next week, the odds are 60 percent that the March contract will be lower.
There is not a lot that can be said for wheat other than the fundamentals are weak with prices following the direction of corn and soybeans. World stocks are abundant and crop conditions have improved in the Plains. However, the market is finding support from rumors that Russia intends to tax grain exports. Export inspections last week were 17.1 MB with the cumulative shipments running below the pace needed to reach USDA’s projection of 950 MB. Meanwhile, be forewarned that the trend following funds have loaded the boat and are short 465 MB of wheat, which is a record. This is supportive and could create fireworks if they are forced to cover.
March wheat has traded higher for six consecutive sessions since bottoming at 590 for a gain of 11.5 percent. If you will notice on the chart, the long-term downtrend line has been broken, but a rally past 670.75 is needed to break the series of lower highs and lower lows that have been unfolding from the contract high at 994.75. In this event, a counter seasonal rally to 685 or 720 is likely. For now, a decline below 644 is needed to terminate the short-term uptrend. Be advised that February is generally a down month for wheat futures with the market lower 79 percent of the time. Next week, the odds are even as to whether March wheat is higher or 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.