On The Money Grain Commentary–10-13-11

Corn Outlook:

     Corn futures have found traction after plummeting 26.5 percent since August.  Bloodletting by the funds has subsided with their long position falling to 575 MB from the peak in September at 1.355 BB.  Since 2010, large speculators have been the driving force in commodities.  However, because of increased volatility and economic uncertainty many are leaving risk oriented investments for a safer haven.  Meanwhile, corn caught on fire Tuesday from news that Russia plans to limit grain exports to 24 million tons, which ignited a 40-cent limit rally.  However, some of the zeal was lost Wednesday when USDA forecast 2011-12 ending stocks at 866 MB., up 194 MB from last month. World stocks increased 4.9 percent to 123.1 million tons.  While stocks remain tight, they are on the upswing.  Harvest is 33 percent complete and slightly ahead of the average.   

     December corn has recovered from the low made on October 3rd at 572.25 rebounding to 655 on Wednesday.  This met a target at 650 mentioned in last week’s comments.  Wednesday’s high is likely a short-term top ending the initial phase of the recovery.  Support is at Thursday’s low of 622 followed by 613.  Unless there is a close below 603, the potential exists for prices rising to a secondary target at 675.  Cycle analysis points to the rebound ending on October 20th, October 24th, or it could be as late as November 7th.  Longer-term, the market is at risk for a decline to 535 or lower.  Next week, the odds are 55 percent that December futures will be lower.   

Bean Outlook:

        The carnage in soybeans caused by fund liquidation has finally ended.  Since August, prices have retreated 21.3 percent with the longs of the trend following funds falling from 745 MB to 135 MB.  Meanwhile, on Tuesday, soybean futures were jumpstarted from news of Russia restricting grain exports.  However, slow growth in the economy and waning interest in commodities will limit gains.  Ending stocks for 2011-12 soybeans are forecast at 160 MB, which is down slightly from last month.  World stocks rose slightly to 63.0 million tons reflecting an abundant supply.  Harvest is progressing at a rapid pace and 51 percent complete compared to the average of 46 percent.       

      March soybeans established a double bottom at 1173.5 on October 4th and 7th and have since marched higher. Short-term support is at Thursday’s low of 1247.25 followed 1235.  As it stands now, the recovery should continue to 1290, while a more bullish pattern shows the chance of reaching 1325.  Cycle analysis points to the rebound ending on October 18th or October 25th, although it could be as late as November 7th.  Longer-term, the market is at risk for a decline to 1135 or 1060.  Next week, the odds are even as to whether March futures will be higher or lower. 

 Wheat Outlook:

     Wheat futures found support early this week from news of Russia limiting grain exports.  However, the recovery was brief, and the bears regained control when the USDA showed that supply is on the upswing.  They project 2011-12 ending stocks rising 76 MB from last month to 837 MB.  World stocks are forecast at 202.3 million tons, an increase of 4.0 percent.  This quickly tempered bullish enthusiasm.  Wheat planting is lagging at 59 percent complete compared to the average of 67 percent.  In other developments, the trend following funds reduced their short futures position 15 MB to 340 MB.      

     December wheat has rebounded from the double bottom made on October 3rd and 4th at 596.75.  Prices traded to 665.25 on Tuesday, but broke sharply Wednesday because of the report and fell to 605 Thursday.  If the rally to 665.25 ended the recovery, it was shallow as the wave pattern shows prices climbing to 675 or 700 with a top developing on October 21st.  Currently, resistance is at 635-645.  While the decline from 665.25 is extreme, a rebound to 675 could still occur.  However, we are stretching the envelope.  Meanwhile, if 596.75 fails, the correction ended prematurely and prices are headed to 555 or 535.  Next week, the odds are 60 percent that December futures 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.