Traders celebrated when they returned from the New Year holiday as the stock market surged and the grains rallied. Optimism regarding Europe led to the strength in equities. While pumping money into their financial system to resolve the debt crisis is a band-aid measure, it does not fix the problem. However, cutting spending does! In the meantime, the grains have risen the past several weeks because of dry conditions in South America. Corn futures have closed lower only twice since mid December. Meanwhile, interest from the funds has returned as the trend following funds bought 130 MB last week increasing their long position to 350 MB. The longs of the index funds stand at 1.815 BB. Export inspections were 24.6 MB with shipments running 6 percent behind last year. The next mover and shaker for the grains will be the final crop production and supply-demand report on January 12th. If it disappoints, the rally in grains is over.
March corn traded to 664.25 on Tuesday where a top developed with prices backing off to 639.5 on Thursday. There is a chance of climbing to 672, but if we do not rebound on Friday or 635 is exceeded, it is unlikely. As mentioned in previous comments, an irregular type correction appears to be developing from the October low at 586, the high made in November at 676.25 and last month’s low at 576.25. These tend to be complex patterns and can be drawn out. If it is complete, a decline to 620-610 is likely with a more bearish pattern pointing to a sell-off to 530. Be advised that the momentum and trend indicators are approaching levels that have produced a sell-off of 65 cents to $1.00 or more in the past. From a seasonal perspective, corn futures tend to peak in early to mid January followed by a decline until the end of February. Next week, the odds are 60 percent that March corn will be lower.
Dry conditions in Argentina and Brazil have underpinned soybean futures since mid December. Weather in South America will be the focus among traders until the crop report on January 12th or a general rain occurs. While rain has fallen in Brazil, dryness is more of an issue in Argentina. However, rain is forecast this weekend. Export inspections were 24.6 MB with cumulative shipments running 30 percent behind a year ago. China took 28.1 MB or 82 percent of the shipments. Last week, the trend following funds trimmed their short soybean futures position 25 MB to 35 MB. Meanwhile, the index funds are long 805 MB.
March soybeans rallied to 1244.75 on Tuesday where a candlestick top developed that was followed by a pullback to 1206.75 on Thursday. Right now, the market is treading water. There is a chance that the recovery from last month’s low at 1104.5 is complete. This will be confirmed by weakness on Friday or a decline below 1195. Meanwhile, if prices recover instead, we could work upward to 1260-1270. In the meantime, be advised that the trend and momentum indicators are on the verge of generating sell signals. Longer-term, the trend is down with the potential for a sell-off below 1104.5 to 1060 or lower. From a seasonal perspective, soybean futures tend to peak by mid January followed by a decline through the end of February. Next week, the odds are 60 percent that March soybeans will be lower.
Wheat futures have been riding on the coattail of corn and soybeans for the past several weeks. If corn becomes too expensive for feeding, more wheat will be used in livestock rations. Right now, the supportive factor for wheat is that the trend following funds are liquidating their short futures position. Last week, they covered 55 MB reducing their shorts to 365 MB. Meanwhile, the longs of the index funds rose slightly to 935 MB. Export inspections were 13.5 MB with shipments running 9 percent behind last year.
March wheat traded to 670.75 on Tuesday where a candlestick top developed that may have ended the recovery from last month’s low at 577.25. If you will notice on the chart, the market turned lower from the long-term downtrend line. In addition, the trend indicator rolled over and suggests that a top has occurred in which there could be a setback to 613. Meanwhile, a more bearish pattern shows the potential for a sell-off to 550 and possibly 530. From a seasonal perspective, wheat futures generally turn down by mid January followed by a decline until the end of February or late April. Short-term resistance is on a bounce near 645. Next week, the odds are 60 percent that March wheat will be higher.
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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.