On The Money Grain Commentary 10-18-12

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Corn Outlook:

     Grain futures have been under the gun the past few weeks because of fund liquidation.  Uncertainty regarding the economy, impact of the Dodd-Frank law and outcome of the election are factors causing the funds to trim their exposure in commodities.  In corn, last week, the trend following funds sold 60 MB reducing their long position to 1.0 BB.  The longs of the index funds fell 15 MB to 1.810 BB.  Although the corn inventory is tight, exports have been horrendous.  Inspections last week were 17.3 MB and below the average needed to reach USDA’s projection of 1.150 BB.  Because U.S. corn is priced higher than South America, shipments are running 29 percent behind last year while total commitments are down 44 percent.  Harvest is winding down at 79 percent complete compared to the average of 38 percent.  Thursday’s rally and firm basis levels indicate that producers are unwilling to sell corn at current levels.

     December corn fell to 732.5 on Monday but held last week’s low at 732.25.  The market has rebounded with resistance likely at 765.  Unless 776 is exceeded, we may stay in a trading range a while with support at Monday’s low.  A decline below this level would be bearish and threaten the bottom set in late September at 705.  Otherwise, a rally beyond 776 puts the market on track for a rebound to 795 or higher.  As mentioned in previous comments, there is one pattern showing the potential for advancing past the contract high at 849.  However, a pickup in demand is essential for it to happen.  Right now, the trend indicators are pointed up favoring firmer prices.  Next week, the odds are 78 percent that December corn will be down.

Bean Outlook:

      The sell-off in soybeans was more extensive than in corn or wheat.  Last week, the trend following funds trimmed 30 MB from their long position reducing it to 735 MB.  However, the index funds increased their longs 35 MB to 615 MB.  Although soybeans stocks are tight and exports are soaring, fund liquidation trumped bullish fundamentals.  However, the strength displayed on Wednesday and Thursday suggests the bulls are showing interest again.  Export inspections last week were sensational at 57.8 MB with China taking 28.8 MB or 50 percent of shipments.  Cumulative shipments are 57 percent ahead of last year while total commitments are up 37 percent.  Any weather related problems that arise in South America will definitely cause end users to scramble.  Harvest in the U.S. is progressing quickly and 71 percent complete compared to the average of 58 percent.    

      November soybeans fell to 1485.75 on Monday and recovered, possibly ending the sell-off from 1789.  The trend indicators are turning up supporting this scenario.  If this is the case and provided that 1485.75 holds, the market is subject to a recovery past resistance at 1574 to 1600, 1637 or 1673.  Seasonally, soybean futures tend to work upward from the end of October until mid November.  Cycle analysis points to a top occurring on November 5th or November 13th.  Next week, the odds are 70 percent that November futures will be higher.

 Wheat Outlook:

     Traders are concerned about shrinking global stocks of wheat; however, the U.S. has been unable to capture increased export business and remains uncompetitive.  This is reflected by last week’s meager inspections of 7.0 MB.  Meanwhile, cumulative shipments lag behind last year by 11 percent while total commitments are down 12 percent.  They could improve later if the Black Sea region restricts shipments.  Planting is 71 percent done, which is on par with the average.  Last week, the trend following funds added 50 MB to their short position increasing it to 60 MB.  The longs of the index funds were unchanged at 890 MB.      

     December wheat fell to 840.25 on Monday, which appears to have completed the correction from 953.25.  The trend indicators are attempting to turn up, but a recovery past 894 is needed for verification that the pullback is over.  In that event, a rally to 955 or 995 is expected with a top occurring on November 1st or November 13th.  Next week, the odds are 70 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.