On The Money Grain Commentary–11-3-11

Corn Outlook:

     Investors were jubilant last week thinking that Greece’s debt problem had been resolved.  Faces are grimmer this week as their prime minister announced a referendum on the bailout plan fueling fear of a default.  Meanwhile, there are rumors that he may resign with the referendum being scrapped.  Adding to the confusion, MF Global has filed for bankruptcy.  Because of these uncertainties, volatility has gone through the roof in many markets.  In other developments, corn harvest is 78 percent complete compared to the average of 62 percent.  Export inspections were disappointing at 27.7 MB and below the average needed to reach USDA’s projection of 1.6 BB.  The trend following funds were aggressive last week adding 135 MB to their long position increasing it to 615 MB.  The longs of the index funds were down slightly to 1.685 BB.    

     December corn is drifting like a ship without a rudder.  Since peaking last month at 665.5, the market has traded in a range bound by Monday’s low at 631.5.  Right now, the bulls as well as the bears lack conviction on a direction.  The indecisiveness will likely continue until an event, such as next week’s crop report, forces a breakout.  From a seasonal perspective, corn futures generally trend lower until the first or last week of December.  The technical indicators are neutral to overbought, which means that a decline below 640 warrants a test 631.5 again.  For now, a close beyond 657 is needed to put the market back on track for trading to a target mentioned in previous commentaries at 675.  Longer-term, prices are at risk for a sell-off to 535.  Next week, the odds are 60 percent that December corn will be lower. 

Bean Outlook:

            Soybean futures have struggled the past few weeks amid the angst in the financial markets.  The market’s bright spot has been that exports have been strong for the past three weeks.  Inspections last week were solid at 48.5 MB and above the average needed to reach USDA’s projection of 1.375 BB.  China took 35.8 MB or 73 percent of the shipments.  Meanwhile, exports will likely taper off later this month or early December.  Harvest is progressing rapidly at 87 percent complete compared to the average of 79 percent.  Activity by the trend following funds was uneventful last week with their long position falling 10 MB to 155 MB.  However, the index funds added 30 MB to their longs increasing them to 780 MB.    

     March soybeans seasonally trend higher until mid November but are deviating from the norm.  Prices fell to 1199.75 on Tuesday and recovered to 1240.5 Thursday.  Resistance is at 1245-1255.  Right now, a close beyond 1262 is needed break the series of lower highs and lower lows that have been unfolding from last month’s high at 1290.  In this event, it puts the market back on its seasonal path and increases the chance for a recovery to a target mentioned in previous comments at 1325.  Otherwise, failure of 1199.75 turns the short-term trend down and projects a decline below the low at 1173.5 to longer-term targets 1135, 1100 or 1060.  Next week, the odds are 68 percent that March futures will be higher. 

 Wheat Outlook:

     Wheat futures have gone nowhere the past few weeks with the market mostly following the direction of corn.  Winter wheat planting is winding down and 89 percent complete.  Forty-six percent of the crop is rated in good-to-excellent condition, which is down one point from last week and on par with a year ago.  Export inspections were 20.8 MB and above the average needed to reach USDA’s projection of 975 MB.  However, U.S. wheat faces stiff competition from the Black Sea region.  The trend following funds reduced their short position 35 MB to 345 MB, which is down from the record set the previous week at 380 MB.  The longs of the index funds were reduced slightly to 945 MB.       

     December wheat fell to 612 on Tuesday and recovered.  Meanwhile, the wedge-type pattern mentioned in previous comments continues to unfold from last month’s low at 596.75 and the high at 665.25.  When a breakout of these patterns occurs, it is generally in the direction of the existing trend, which, in this case, is down.  In addition, if you will notice on the chart, a series of lower highs and lower lows have been unfolding from the February peak at 986.75, which is bearish.  Seasonally, wheat tends to work downward until the first or the second week of December.  In order to turn the trend up, a rally past 665.25 is needed.  Otherwise, a close below 619 constitutes a downside breakout of the wedge pattern and projects a sell-off to 555, 535 or possibly 455.  Next week, the odds are 60 percent that December wheat will be lower.

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