On The Money Grain Commentary 11-27-13

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Corn Outlook:

Corn futures recently mustered a bounce from the uptick in exports, rally in soybeans and fund short covering.  However, the recovery was brief as the prospect of ending stocks in January topping 2.0 BB is keeping the bulls at bay.  With stocks of this magnitude, any strength is likely to be short-lived until prices reach a level that stimulates demand.  Inspections last week totaled 30.2 MB, which is above the average needed to reach USDA’s projection of 1.4 BB.  In other developments, harvest is almost done at 95 percent complete with the upper Midwest wrapping up in another ten days.  Last week, the trend following funds added 65 MB to their short futures position increasing it to 1.025 BB.  With harvest complete, traders will now focus upon exports, the outside markets, and weather in South America until late winter-early spring.

March corn bottomed last week at 420 followed by a rebound to 433 Monday.  Additional resistance is at 435-438.  Unless there is a recovery beyond 449.5 setting a higher high, the trend is down with the potential for a sell-off to 412 as the next low and 387 or 365 longer-term.  Seasonally, corn futures usually trend downward until early January before an important low develops.  Cycle analysis points to a bottom around December 6th, but it will probably be an intermediate-term low.  A more important low is unlikely until December 30th or January 10th.  During the month of December, corn futures are down 53 percent of the time.  Next week, the odds are 70 percent that March corn will be lower.

Bean Outlook:

     Soybeans have been sizzling amid strong exports to China.  Inspections last week were solid at 66.9 MB with China taking 51.7 MB or 77 percent of shipments.  However, a note of caution is warranted as the four-week average of shipments fell for the first time since the marketing year began.  This is a forewarning that they could be peaking.  In other news, weather in South America is favorable for crop development with a potential record crop possibly in the making.  However, the chances are slim that we will completely escape a scare of some degree before harvest.  Last week, the trend following funds added 35 MB to their long futures position increasing it to 465 MB.  This is the largest position they have held since September.  If you recall, at that time, there was a 10.5 percent drop in prices.  This suggests the market needs a constant dose of fresh news to keep the bulls entertained.

      March soybeans have risen straight up from 1256.75 with the exception of a one-day setback to 1301 on Tuesday.  Prices traded to 1322 on Wednesday where a reversal occurred possibly ending the rally from 1256.75 and the low made earlier this month at 1233.25.  Be forewarned that the momentum indicators are giving a heads up to a potential top as they have not risen with the market.  A decline below 1301 suggests that the party is probably over.  Keep in mind there is a seasonal tendency for soybeans to peak in early December followed by a decline until the end of February.  When the recovery from 1233.25 is done, a sell-off to 1100 or 1057 is expected.  Cycle analysis points to this occurring around January 6th, January 21st or March 10th.  During December, soybean futures are down 58 percent of the time.  However, when the market is higher in November, the chances increase to 66 percent.  Next week, the odds are even as to whether March soybeans will be higher or lower.

 Wheat Outlook:

There is not a lot of news in wheat with the market following corn and soybeans.  Last week, the ratings for winter wheat fell one point to 62 percent in good-to-excellent condition.  Export inspections were 12.5 MB and below the average needed to reach USDA’s projection of 1.1 BB.  Since late September, the pace of shipments has been falling.  One issue that stands out like a sore thumb is that the short futures position of the trend following funds rose 45 MB last week to 480 MB, the largest since April 2012.  This suggests that the bears need fresh news to push prices much lower.

March wheat traded to 667 on Wednesday, the highest level seen since bottoming earlier this month at 652.  The trend indicators have turned up and the long-term wave pattern shows that a major low may have developed.  For confirmation of a bottom, a close beyond 670.5 is needed.  In that event, look for a move upward to 686-694 or higher.  Keep in mind that if the market refuses to break 652, the funds may become anxious and begin to cover their short positions.  During December, wheat futures trend higher 58 percent of the time.  Seasonally, an uptrend is prominent into mid January.  Next week, the odds are 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.