On The Money Grain Commentary–10-27-11

Corn Outlook:

     Optimism abounds that Europe is on the road to recovery.   However, the summit agreement for a 50 percent write down of the Greek debt and increasing the rescue fund to $1.4 trillion will only be a band-aid.  No structural changes are being implemented.  Their measure will cut Greece’s debt to GDP ratio from 160 percent to 120 percent.  Big deal!  Printing more money and recapitalizing their banks does not fix the problem.  In the meantime, Italy, Spain, Portugal and Ireland will most assuredly be waiting in line for their handout.  In other developments, corn harvest is progressing smoothly and 65 percent done compared to the average of 51 percent.  Export inspections were 29.4 MB and below the average needed to reach USDA’s projection of 1.6 BB.  The long position of the trend following funds fell slightly to 480 MB, while the longs of the index funds rose 20 MB to 1.695 BB. 

     December corn peaked last week at 665.5 and fell to 633 on Wednesday from where it recovered.  The market broke short-term support at 646 but held 630.  Right now, the short-term wave pattern is indecisive.  A candlestick-topping pattern occurred at last week’s high, and the up trend line from the low made earlier this month at 572.25 has been broken.  This increases the chance of trading sideways to lower, possibly falling to 618-608.  A break below 633 is needed for greater assurance of it happening. Meanwhile, a close beyond 657.5 projects a move upward to a target mentioned in previous comments at 675.  Longer-term, the market is at risk for a sell-off to 535.  In November, corn futures close lower 61 percent of the time.  Next week, the odds are 70 percent that December corn will be higher.  

Bean Outlook:

            Soybean traders are focused on Europe’s debt problem, but are eyeing planting in South America as well.  Harvest is progressing without any glitches and is 80 percent done compared to the average of 71 percent.  Export inspections were strong for the second consecutive week at 41.1 MB and above the average needed to reach USDA’s projection of 1.375 BB.  China took 30.9 MB or 75 percent of the shipments.  They should be strong buyers until after the first of the year when their attention turns to the South American crop.  In other developments, the trend following funds added 50 MB to their long soybean position increasing it to 165 MB.  The index funds bought 40 MB, which puts their longs at 750 MB.

      March soybeans bottomed last week at 1215 and recovered to 1262 on Thursday.  Seasonally, soybean futures tend to move upward until mid November, which is supportive of a rally past the high made earlier this month at 1290.   We need to get past this level to turn the trend up and, in the event, look for a rally to 1325 with a top likely on November 7th or November 16th.  Otherwise, a break below 1215 turns the short-term trend from sideways to down and means that we are headed lower.  Longer-term, the market is at risk for a sell-off to 1135 or 1060.  During November, soybean futures close higher 68 percent of the time.  Next week, the odds are even as to whether prices will be higher or lower.

 Wheat Outlook:

     Although wheat is undervalued in relation to corn, it has struggled because of rising global stocks. Meanwhile, Egypt has snubbed U.S. wheat and purchased Russian origin. Planting is winding down and 82 percent complete compared to the average of 84 percent.  Meanwhile, Texas is lagging its average by 15 percent.  Export inspections were 17.4 MB and above the average needed to reach USDA’s projection of 17.4 MB.  In other developments, the trend following funds are becoming more bearish as their short futures position has risen to a record at 380 MB.  Meanwhile, the index funds are long 950 MB.       

     December wheat has been confined in a range this month between 596.75-665.25.  If you will notice on the chart, a wedge-type pattern is unfolding.  When there is a breakout of these patterns, it is generally in the direction of the existing trend, which, in this case, is down.  Seasonally, wheat tends to trend lower until the first or second week of December.  Resistance is at 650 followed by 665.25.  A close below 605 projects a sell-off to 555, 535, or possibly as low as 455.  During November, wheat futures close lower 53 percent of the time.  Next week, the odds are even as to whether December wheat 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.