On The Money Grain Commentary 10-25-12

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Corn Outlook:

      Despite tight stocks caused by this summer’s drought, corn needs a catalyst to whet bullish enthusiasm.  For the moment, one is lacking as high prices this summer choked off demand.  Total export commitments are running 15 percent behind a year ago and the number of cattle on feed is down 3 percent.  Inspections last week stuck out like a sore thumb at 9.6 MB.  Meanwhile, the Ukraine announced that they intend to halt grain exports next month and Argentine corn values are higher, which may give demand a boost.  Harvest is almost done at 87 percent complete.  The trend following funds are trimming their long position because of the struggling global economy.  Last week they sold 20 MB reducing their position to 980 MB.  However, the index funds increased their longs 15 MB to 1.825 BB.  Corn is presently looking to soybeans for leadership.           

     December corn has been mired in a trading range from 705-776 since late September.  More recently, the range has been from 732.25-769.  The trend and momentum indicators are flat suggesting a continued sideward pattern.  To turn the trend up, we must get past 776.  In that event, a move upward to 795 is expected.  One longer-term pattern shows the potential for rising past the contract high at 849.  However, time is quickly fading for it to occur in December futures unless there is a 180-degree turnaround in exports (not likely to happen) or if a weather issue develops in South America within the next few weeks.  If we cannot hold 732.25, a bearish pattern could come into play.  Next week, the odds are 70 percent that December corn will be higher.

Bean Outlook:

      Soybean demand is staggering and shows no sign of letting up as total export commitments are 23 percent ahead of last year.  Inspections last week were a marketing year high at 61.4 MB with China taking 43.8 MB or 71 percent of shipments.  Right now, the U.S. is the only game in town for sourcing supplies until South America’s crop becomes available next year.  Meanwhile, planting is underway in Brazil and Argentina with a record crop expected unless Mother Nature decides otherwise.  Harvest in the U.S. is progressing swiftly and winding down at 80 percent complete.  Stocks will become extremely tight once it is done.  The trend following funds continue to lighten their exposure to commodities as they sold 65 MB of soybeans last week reducing their long position to 670 MB.  The longs of the index funds were up slightly to 620 MB.    

     March soybeans traded to 1543 on Wednesday exceeding resistance at 1535.25.  Support is expected on a pullback to 1500-1490.  As it stands now, the sell-off from 1728.25 ended on October 15th at 1457.  Unless it fails, we are due for a recovery to 1560 and probably closer to 1592 or 1625.  Seasonally, soybean futures tend to work higher from the end of October until mid November.  Cycle analysis points to a top occurring on November 5th or November 15th.  Meanwhile, a longer-term pattern in the early stages of development shows the potential for advancing past the contract high at 1728.25 to 1762 or 1832.  If it comes to fruition, a top ending the rally from 1138 may not occur until late December or the first week of February.  More will be mentioned at the pattern unfolds.  Next week, the odds are even as to whether March futures will be higher or lower.

 Wheat Outlook:

     Ukraine’s announcement of halting grain exports in November is raising hope for an improvement in U.S. wheat sales.  However, it will be a couple of weeks before anything develops.  Sales have been lousy this season with total commitments running 10 percent below last year.  Inspections last week were 16.4 MB and below the average needed to reach USDA’s projection of 1.150 BB.  Wheat planting in the Midwest and Plains is on par with the average at 81 percent.  Areas in the Plains could use some moisture.  The trend following funds added 20 MB to their short position last week increasing it to 90 MB.  The longs of the index funds are unchanged at 890 MB.

     December wheat rose to 895 this week with a close above this level needed to verify that the correction from the contract high at 953.25 has ended.  Otherwise, there could be a setback to 860-853.  Meanwhile, longer-term, the market is on track for a rally to 955 or 995.  This could occur as soon as November 1st, but it will probably be closer to November 13th.  Next week, the odds are even as to whether December futures will be higher or 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.