On The Money Grain Commentary–11-10-11

Corn Outlook:

      A new coalition government is being formed in Greece, but problems are brewing in Italy.  Italy may be the next domino to fall as their bond yields have soared to over 7.0 percent.  Be advised that Europe’s debt crisis is worsening caused by decades of fiscal mismanagement.  Structural reform is needed to bring the situation under control.  USDA projects 2011-12 ending stocks of corn at 843 MB compared to 866 MB in October.  Harvest is winding down at 87 percent complete compared to the average of 73 percent.  Export inspections were disappointing at 22.1 MB and below the average needed to reach USDA’s projection of 1.6 BB.  In other developments, the trend following funds added 45 MB to their long position increasing it to 660 MB.  The longs of the index funds stand at 1.685 BB.      

     December corn has labored in its rise from support at 631.5.  Prices traded past last month’s high at 665.5 to 666 on Wednesday.  Previous comments have mentioned the potential for rising to 675.  However, the odds of it happening are diminished on a close below 640.  In this event, a pullback to 620 is likely.  Meanwhile, once the recovery from the October low at 572.25 ends, the market will be in a position for a sell-off to a longer-term target at 535.  From a seasonal perspective, corn futures generally trend lower until late December or early January.  Next week, the odds are 70 percent that December corn will be higher. 

Bean Outlook:

          Soybean futures are sagging amid increasing negative fundamentals.  USDA projects 2011-12 ending stocks at 195 MB compared to 160 MB in October.  Weather in South America is near ideal allowing rapid planting and the start for a potential record crop.  Harvest in the U.S. is wrapping up at 92 percent complete.  Exports have improved recently with inspections last week at 49.1.1 MB.  In other developments, the trend following funds trimmed 50 MB from their long futures position reducing it to 105 MB.  Meanwhile, the index funds increased their longs 30 MB to 810 MB.

      Since peaking in October at 1290, a series of lower highs and lower lows have been unfolding in March soybeans.  In order to turn the trend up, a rally beyond 1240.5 is needed.  Otherwise, the path of least resistance is down and a decline below the October low at 1173.5 projects a sell-off to the longer-term targets at 1135, 1100, or 1060.  A more bearish pattern points to a decline to 980.  Seasonally, soybean futures tend to work lower through the end of November followed by bounce into early December.  A more important bottom could occur during the period of December 20th-23rd or January 3rd.  Next week, the odds are 80 percent that March soybeans will be higher. 

 Wheat Outlook:

     Wheat futures have traded in a sideward pattern for over a month as the market lacks conviction on a direction.  Ending stocks of 2011-12 wheat are projected at 828 MB compared to 837 MB in October.  Ukraine is suffering from a drought while excessive rain is delaying harvest in Australia.  Planting in the U.S. is 94 percent done with the ratings improving three points to 49 percent in good-to-excellent condition.  Export inspections were a marketing year low at 10.1 MB reflecting competition from the Black Sea region and recent strength in the dollar.  Meanwhile, caution is warranted at the short position of the trend following funds has risen to 375 MB, which is short of the record set a couple of weeks ago at 380 MB.  The longs of the index funds stands at 945 MB.    

     December wheat has traded in a range from 596.75-665.25 since early October forming a wedge-type pattern.  If you will notice on the chart, a series of lower highs and lower lows have developed from the contract high at 986.75, which favors a downside breakout.  Right now, a close below 619 is needed for confirmation and, in the event, projects a sell-off to 555, 535 or possibly 455.  In this event, look for a bottom on November 28th or December 8th.  For now, a rally past 659.25 is needed to violate the pattern.  Next week, the odds are 80 percent that December wheat will be lower.

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