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Corn futures have been in a holding pattern the past few weeks because of the holidays and traders waiting for the January Crop Report. They do not have to wait much longer as it will be out tomorrow. Most expect a 70-75 MB uptick in production and ending stocks for the 2013-14 crop. Meanwhile, weather is favorable in South America, although a few areas in Argentina have been under stress from above normal temperatures. Export inspections were below estimates at 19.3 MB and the average needed to reach USDA’s projection of 1.450 BB. Currently, shipments are running 80 MB below the pace necessary to reach their target. The trend following funds have turned more bearish as they have added 85 MB to their short futures position increasing it to 870 MB. For the rest of the winter, the focus will be planting intentions this spring.
March corn managed a bounce to 430 on Tuesday which was followed by a break to a new contract low at 408 Thursday. For weeks, it has been mentioned that prices were on track for a decline to 405 or 387. As it stands now, the short-term wave pattern shows support developing around this level from where there could be a rebound to 420-422. Unless there is a rally beyond 430, the potential remains for trading lower to 387 with 355 being the extreme. Whether these levels are reached, or not, largely depends upon the outcome of the USDA report tomorrow. In the event it is more bearish than anticipated, a meaningful bottom may not develop until January 22nd-24th or February 3rd-5th. Once a low occurs, a seasonal up swing is likely into March-April. Next week, the odds are 60 percent that March corn will be lower.
Soybean futures have been trading sideways to lower the past few sessions because of favorable weather in South America and the expectation for a record crop. The January Crop Report tomorrow is expected to show a 20 MB increase in production with ending stocks mostly unchanged. In other developments, export inspections were better than expected at 56.4 MB with China taking 48.8 MB or 77 percent of shipments. Meanwhile, the overall pace of shipments has been on the downswing since November falling 34 percent. For the past couple of weeks, the trend following funds have pulled in their horns trimming their long futures position 175 MB to 580 MB. With harvest beginning in Brazil, additional liquidation is likely.
Since bottoming on January 2nd at 1262.5, March soybeans have traded sideways bound by the high at 1283. Unless it is exceeded, a decline to 1250-1245 is expected as the next low. If we surpass 1283, resistance is likely at 1300-1310. Longer-term, the trend is down with the seasonal tendency of working lower until the end of February. If we follow the norm, the potential exists for a sell-off to 1195, 1167 or 1140 with a bottom developing around January 21st, but probably closer to February 10th, February 19th or March 10th. Next week, the odds are 60 percent that March futures will be lower.
Wheat has been under pressure even though the recent cold blast may have caused winterkill in areas of the Plains and Midwest lacking snow cover. In addition, Egypt’s purchase of 535,000 tons of wheat from eastern Europe failed to offer much support. The supply-demand report tomorrow is expected to show an 18 MB decline in ending stocks from last month. Export inspections were in line with estimates at 13.6 MB, but below the average needed to reach USDA’s projection of 1.1 BB. In other developments, the trend following funds are short 515 MB, which is just short of the record of 520 MB. Eventually, the bears will overstay their welcome.
After bottoming on January 2nd at 595.5, March wheat mustered a two day bounce to 612.75 which was followed by a decline to a new contract low Thursday at 578.5. This met a long-term target at 580, but a sell-off to 564 cannot be ruled out. Currently, we are in a period for a bottom to develop but need to rally past 602 for verification of a low. Unless it happens, the market may work lower until January 21st. 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.