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Traders were jolted on Monday from USDA’s projection of quarterly stocks at 824 MB, which was well above the average guess of 688 MB. This infers that ending stocks for 2013-14 will likely top 2.0 BB compared to the current estimate of 1.855 BB. Harvest is rolling along at 12 percent complete compared to the average of 23 percent. Yields continue to exceed expectations. Export inspections were 21.9 MB and are running below the average needed to reach USDA’s projection of 1.225 BB. The trend following funds remain bearish and increased their short futures position last week 105 MB to 980 MB. This is the largest short position they have held since October 2012. However, it does not mean that a bout of short covering is around the corner. Be aware that the government shutdown limits USDA information and could push traders to the sidelines.
December corn has been on a downhill slide since peaking in August at 508.25. Prices bottomed on Wednesday at 435 setting a short-term low. This is not far from a long-term target mentioned in previous comments at 430. Resistance is expected on a bounce to 445-448. Unless there is a rally past 462, the trend is down with the market on track for a sell-off to 412. A more bearish pattern points to a decline to 380. A bottom could occur on October 11th, but it will likely be an intermediate-term low. A more important bottom is not expected until October 21st, and it could be as late as November 7th. Meanwhile, keep in mind that corn frequently does not bottom until the first week of January. Next week, the odds are 60 percent that December corn will be higher.
Most traders were leaning to a friendly quarterly stocks report, but that is not what the USDA had in mind. Stocks were 141 MB which was above the average guess of 126 MB. This suggests that 2013-14 ending stocks may wind up closer to 165 MB rather than the current estimate of 150 MB. However, this does not take into account a potential uptick in yield, which could push ending stocks even higher. Harvest is plodding along at 11 percent complete compared to the average of 20 percent. So far, yields are above expectations. Sales are off to a swift start this season running 16 percent above a year ago. However, exports are lagging with inspections last week below estimates at 14.2 MB. Cumulative shipments are only 65 percent of last year suggesting that sales may be front end loaded. In other news, the trend following funds trimmed their long futures position 85 MB last week reducing it to 475 MB. More liquidation is likely.
November soybeans fell to 1263.5 on Tuesday exceeding a target mentioned in previous comments at 1285. This is likely a short-term low as the rebound resembles a correction. Resistance is expected at 1296. Unless there is a recovery beyond 1305, the wave pattern shows prices declining to 1230 and, maybe, 1207. A bottom could occur around October 11th or October 23rd. Seasonally, soybean futures tend to trend downward until the end of October followed by a recovery into December. Meanwhile, in the event that 1305 is exceeded, the market could climb to 1335. However, this is a tall order. Next week, the odds are 60 percent that November soybeans will be lower.
The USDA delivered a friendly stocks report of 1.855 BB on Monday, which was less than the trade guess of 1.938 BB and 12 percent below last year. The report showed greater usage of wheat in livestock feeding during the summer. Exports continue to be the bright spot with inspections last week at 32.9 MB. Brazil is showing interest in U.S. wheat as their main supplier, Argentina, suffered freeze damage a few weeks ago. Cumulative shipments this season are running above the average needed to reach USDA’s projection of 1.1 BB. Meanwhile, be aware that shipments tend to taper off in early October. Wheat seeding is progressing and 39 percent done compared to the average of 40 percent. The trend following funds are less bearish and have lightened their short futures position 70 MB reducing it to 370 MB.
December wheat was stronger this week and has risen past resistance at 676.5 to 698 on Thursday. This sets a higher high and turns the intermediate and longer-term trends up. Short-term, prices could work up to 703-708 before they break. A setback is expected by early next week with support emerging at 672 followed by 662. Longer-term, the potential exists for climbing to 742. Cycle analysis points to a top around October 23rd or October 30th. A more important top may not develop until November 21st. In many cases, wheat tends to rise until December or January. Next week, the odds are 60 percent that December wheat will be higher.
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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.