Is there light at the end of the tunnel for the grains? Since late August, they have endured relentless selling by the funds because of the debt crisis in Europe. The contagion is spreading as Italy’s debt rating was downgraded this week. Traders have left commodities and paper assets in droves. Last week, the trend following funds sold 220 MB of corn reducing their long position to 795 MB. In April, their longs stood at 1.570 BB. Meanwhile, the long position of the index funds fell 80 MB last week to 1.715 BB. Although the picture looks bleak, one ray of sunshine is that China may need to import 5-10 million tons of corn in 2012. In other developments, harvest is 21 percent complete compared to the average of 23 percent. Export inspections were disappointing at 28.4 MB and below the average needed to reach USDA’s projection of 1.650 BB.
December corn fell to 572.25 on Monday, October 3rd, which appears to have ended the slide from the contract high at 779. This almost matches the July low at 575.5. Last week’s comments mentioned that a bottom could occur during the period of October 3rd-6th. Short-term support is expected at 595. If the sell-off is complete, a rally past 617 projects a slow grind upward to 650 or 675 before the recovery is over. Cycle analysis points to the rebound ending as soon as October 14th, although it will probably be closer to October 20th or October 24th. Meanwhile, one pattern shows that it may be as late as November 7th. Longer-term, the market is at risk for a decline to 535. Next week, the odds are 60 percent that December futures will be higher.
Soybean futures have been under the gun for the same reasons as corn. The debt crisis in Europe and Greece is worsening creating concerns of deflation. Last week, the trend following funds sold 210 MB of soybeans reducing their long position to 220 MB. During September, they liquidated 525 MB. Meanwhile, the longs of the index funds fell 55 MB last week to 740 MB. The funds were sellers early this week but liquidation has diminished. In other developments, harvest is progressing slowly at 19 percent complete compared to the average of 25 percent. However, considerable progress should be made during the next several days, as weather is ideal. Export inspections were 10.5 MB and below the average needed to reach USDA’s projection of 1.8 BB. China took 4.4 MB or 41 percent of the shipments.
November soybeans fell to 1152 on Tuesday, October 4th where a bottom developed. Last week’s comments mentioned that a low could occur on October 3rd or October 6th. Right now, the rebound from 1152 resembles a correction, which makes me suspicious as to whether it can hold. If it fails, look for a bottom at 1135. Otherwise, if we do not break 1152 by October 10th or close past 1190, the chances are that it will hold. In this event, a rebound to 1270 or 1310 could unfold. Longer-term, the market is a risk for a decline to 1120 or lower. Next week, the odds are 60 percent that November futures will be lower.
The trend following funds have turned more bearish toward wheat as they increased their short position 35 MB last week to 355 MB. This is short of the record set in February 2010 at 375 MB. The extreme oversold condition of the market suggests that they are becoming too one-sided which will likely lead to a short covering rally. Meanwhile, the longs of the index funds stand at 975 MB. Planting is progressing slowly at 42 percent complete compared to the average of 53 percent. Meanwhile, the chance for rainfall in the southern Plains is improving. Export inspections were on the low end of estimates at 22.0 MB but above the average needed to reach USDA’s projection of 1.025 BB.
December wheat made a double bottom on Monday and Tuesday at 596.75, which may have ended the sell-off from the August high at 805.5. Prices rebounded to 639.75 on Thursday where resistance was encountered. So far, the rebound resembles a correction which makes it suspect that 596.75 will hold. If it fails, we could work lower to 570. Right now, a rally past 639.75 is needed to turn the trend up. In this event, look for a rebound to 675 or 700. Longer-term, the market is at risk for a decline to 535. Next week, the odds are 60 percent that December futures 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.