On The Money Grain Commentary–11-23-11

Corn Outlook:

     Corn futures have been on a slippery slope the past two weeks amid concerns of the worsening debt crisis in Europe, potential slowing of China’s economy, large traders abandoning their stake in commodities, and bankruptcy of MF Global.  Competition for export business from the Black Sea region has been fierce evident by corn exports trailing last year by 17 percent.  They have ample stocks and been undercutting U.S. prices in the global market.  Meanwhile, inspections last week were better than expected at 37.5 MB, a marketing year high.  In other developments, large traders continue to reduce their commodity exposure as the trend following funds liquidated 90 MB of their long futures position last week reducing it to 655 MB.  The longs of the index funds fell to 1.655 BB.  Right now, bullish news is scarce.     

     March corn has fallen over 12 percent in value since peaking earlier this month at 676.25.  Prices fell to 591 on Wednesday with additional support expected at the October low of 586 followed by 578.  A bottom is due on November 25th or November 28th.  Once a low develops, we will be in a position for a recovery to 610, 620 or 630 that may take until December 5th-8th to complete.  Longer-term, the wave pattern shows the market at risk for a sell-off to 545 or 540.  A more bearish pattern points to a decline to 475, possibly as low as 410.  Currently, the cycles lean to an important bottom occurring December 27th or during the period of January 3rd-6th.  This coincides with the timing for a seasonal low.  Meanwhile, if we fall to the lower targets mentioned, prices may not bottom until February 3rd or February 7th.  During December, corn futures are lower 52 percent of the time.  Next week, the odds are 80 percent that March corn will be lower.

Bean Outlook:

           Soybeans are plagued for the same reasons as corn, as well as the outlook for a record crop in South America.  Weather has been ideal in Brazil with an early-planted crop leading to a potential early harvest.  In addition, concerns are rising because of the slow start in exports this season, which are running 33 percent behind last year.  However, they have been brisk the past six weeks with inspections last week at 40.7 MB.  China took 32.3 MB or 79 percent of the shipments.  Meanwhile, the strong pace the past few weeks may come to an end as we are entering a period in which exports begin to slacken.  In other developments, the trend following funds sold 105 MB of soybeans last week and are now short 30 MB.  This is the first short position they have held since July 2010.  Meanwhile, the longs of the index funds have fallen to 795 MB.  Right now, bullish news is limited.         

     March soybeans have been setting lower highs and lower lows since peaking in October at 1290.  The trend is down unless there is a rebound beyond 1168. Prices fell to 1130 on Wednesday, which was a long-term target mentioned in previous comments.  However, the chances are that we will continue lower to the secondary targets at 1100 or 1060.  Be advised a more bearish pattern, the one that actually may be developing, points to a sell-off to 980.  Cycle analysis points to a low occurring on November 29th, December 14th or December 19th.  However, these periods may only be an intermediate-term low.  A longer-term bottom may not occur until January 19th or February 19th.  During December, soybean futures are lower 57 percent of the time.  Next week, the odds are 80 percent that March soybeans will be higher.    

 Wheat Outlook:

     Wheat futures cannot gain traction because of intense export competition from the Black Sea region.  Last weekend, Egypt bought wheat from Russia but passed on the U.S.  Inspections were 11.5 MB and below the average needed to reach USDA’s projection of 975 MB.  Shipments have not been over 20 MB for three weeks.  If the current pace continues, they will fall to 875 MB.  Meanwhile, the crop rating was unchanged at 50 percent in good-to-excellent condition and compares to 47 percent a year ago.  In other developments, the trend following funds increased their short futures position 80 MB to 370 MB, while the longs of the index funds fell 20 MB to 930 MB.        

     It has been downhill for March wheat since it peaked earlier this month at 682.  Prices fell to 588 on Wednesday where a short-term low may have developed.  For it to be confirmed, follow through strength is needed after Thanksgiving.  In this event, look for resistance on a rebound to 620.  Longer-term, the wave pattern shows the potential for a sell-off to 535, 520 or 500.  Cycle analysis points to a bottom developing on December 15th or December 20th, which coincides with the period for a seasonal low.  During December, wheat futures are higher 52 percent of the time.  Next week, the odds are 90 percent that March wheat will be 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.