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Grain futures are lacking a story. Weather in South America has run its course. Thoughts are there has been some damage to corn yields in Argentina, but no one has lowered production estimates. Movement of corn in the Midwest has been slow, but is expected to increase with the forecast for warmer temperatures. Right now, grain producers are busy attending winter meetings anxious to hear the presenters’ spring weather forecast and their price outlook. Long story short, it will be a couple of month’s before producers and traders can sink their teeth into concrete news. Closer to home, exports last week were 28.7 MB and below the average needed to reach USDA’s projection of 1.450 BB. The current pace of shipments indicates that we could fall short of their target. Last week, the trend following funds lightened their short corn position 25 MB to 735 MB.
March corn has traded in a range from 435.5-421 for most of the month. The trend and momentum indicators are flat suggesting that we may stay in this pattern a while longer. The market rose to 434.5 on Thursday and if 435.5 is exceeded, a move upward to 450 could occur. Meanwhile, we are entering a period in which there is usually a downturn until the end of February. In the event that prices back off from the current level and 421 cannot hold, a decline to the low made earlier this month at 406.25 is expected. If it fails, look for a sell-off to 387 with a bottom around February 27th. During February, corn futures are down 53 percent of the time. Going into March-April there is generally a recovery. Next week, the odds are 60 percent that March corn will be lower.
Soybeans are losing their bullish appeal on expectations of a record crop in South America. Harvest is accelerating in Brazil with above average yields reported. What is preventing a washout is the lack of sales cancellations by China. It is my opinion that any significant cancellations are unlikely until new crop soybeans have reached port and ready to be shipped. The Chinese vividly recall the logistical snarl that occurred at harvest last year and do not want to get caught in a repeat of that situation. Export inspections last week were better than expected at 73.8 MB with China taking 46.0 MB or 62 percent of shipments. However, be advised that China’s recent Purchasing Managers Index shows that their economy is contracting which may weigh on soybean purchases. In addition, the emerging markets have displayed significant signs of weakness recently. The long position of the trend following funds has risen 10 MB to 535 MB and will become a detriment to the bulls in the event that China cancels sales.
March soybeans rebounded to 1293 on Monday followed by a break to 1260 Thursday. From here, the market recovered 1286.5 and is expected to meet additional resistance at 1293 or 1303. If you will notice on the chart, a wedge type pattern has been unfolding since prices peaked last September at 1377.75. Usually, the breakout of these formations is in the direction of the existing trend, which, in this case is down. A decline close below today’s low is needed for a confirmation that one is getting underway. In that event, look for a sell-off below the low made in November at 1233.25 to 1195, 1167 or 1140 with a bottom around February 24th, February 27th or March 3rd. During February, soybean futures close higher 58 percent of the time. Next week, the odds are 60 percent that the March contract will be lower.
Concerns of winterkill in the Plains and Midwest during January, and a recent purchase by Egypt has failed to muster much of a response in wheat. This is largely due to traders being comfortable with the global supply outlook. Export inspections were disappointing at 14.0 MB and below the average needed to reach USDA’s projection of 1.125 BB. The current pace of shipments indicates that it may be a photo finish in reaching their target. The short position of the index funds was unchanged last week at 450 MB. Right now, the wheat market seems to be looking at the other grains for a direction.
After consolidating between 560.5-578 for the past couple of weeks, March wheat has fallen to a new contract low. As it stands now, we should be in the last leg down from the contract high at 912.75. Targets for the decline are 529 and, maybe, 510. Cycle analysis points to a bottom as soon as February 11th, although it may be closer to February 19th or February 27th. During February, wheat futures are down 79 percent of the time. Next week, the odds are even as to whether the market will be 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.