On The Money Grain Commentary–10-20-11

Corn Outlook:

     Corn futures face crosscurrents from uncertainty surrounding Europe’s debt crisis, harvest pressure, and prices falling to a level that is attracting end users.  Weather has been cooperative allowing harvest to progress quickly at 47 percent complete compared to the average of 41 percent.  China recently reported third quarter GDP at 9.1 percent, their slowest growth rate in two years.  For the past few weeks, optimism has risen that China will increase U.S. corn purchases.  However, if their economy is slowing, these expectations may be overrated.  Export inspections were 21.1 MB and below the average needed to reach USDA’s projection of 1.6 BB.  In other developments, the long position of the index funds fell 90 MB last week to 485 MB.  The longs of the index funds grew slightly to 1.675 BB.  However, the index funds have been in a liquidation mode since August 2010 as their position has fallen by 33 percent.          

     December corn traded to 651.25 on Wednesday and 651 Thursday but failed to breach the high made earlier this month at 655.  The means that we may spend more time consolidating.  Support is at 630 followed by 622.  Seasonally, prices generally trend sideways until the end of the month and work higher through mid November.  The wave pattern shows the potential of rising to 670-675.  We could reach this level as soon as October 28th if prices move upward immediately, while it may well be as late November 7th.  Longer-term, the pattern shows the market headed to 535.  Next week, the odds are 78 percent that December futures will be lower. 

Bean Outlook:

           Soybean futures have been pressured from the slowing global economy and rapid pace of harvest which is 69 percent done compared to the average of 61 percent.  In addition, traders are keeping a close eye on G-20 developments in Paris and hopeful that an agreement will be reached to expand Europe’s bailout fund.  The catch-22 is that it will involve greater funding by France and Germany.  Meanwhile, France is on the brink of having their credit rating downgraded.  Export inspections were a marketing year high at 45.0 MB with China taking 29.7 MB or 66 percent of the shipments.  In other developments, the long position of the trend following funds fell 20 MB last week to 115 MB, while the index funds added 30 MB to their longs increasing them to 710 MB.  However, the index funds have been liquidating their longs since October 2010 with their position falling by 29 percent.   

     March soybeans have fallen four consecutive days in the decline from last week’s high at 1290. So far, the pullback resembles a correction, which favors higher prices later.  However, the rubber band has been stretched to its limit.  Cycle analysis points to a low occurring by the end of the week.  The market fell to 1215 on Thursday, which may have ended the pullback.  Unless there is a sell-off below the low made earlier this month at 1173.5, the wave pattern shows the potential for trading to 1325.  This is supported by the seasonal tendency for an upward move until mid November or the third week of December.  If it happens, a top could occur on November 7th or November 16th.  Longer-term, however, we are at risk for a sell-off to 1135 or 1060.  Next week, the odds are 70 percent that March futures will be higher.      

 Wheat Outlook:

     Wheat futures are struggling from increasing global stocks.  The most recent USDA report showed them increasing by four percent.  Planting is progressing slowly and 73 percent done compared to the average of 77 percent.  Meanwhile, Oklahoma and Texas are running 12 percent and 17 percent, respectively, below their average.  Export inspections were 16.3 MB and slightly below the average needed to reach USDA’s projection of 975 MB.  In other developments, the trend following funds added 15 MB to their short position increasing it to 355 MB.  This is short of the record of 375 MB.  The index funds are long 945 MB. 

     Since bottoming earlier this month at 596.75, December wheat has traded in a range bound by the high at 665.25.  Since last week, the range has narrowed to 605-637.75.  So far, the recovery from 596.75 has the characteristics of a correction which does not instill much confidence of climbing past 665.25.  In addition, there is a strong seasonal tendency for wheat to trend lower from mid October through the first or second week of December.  This casts the potential for falling to 555 or 535 in the event that 596.75 fails.  Next week, the odds are 70 percent that December futures will be lower.

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