Grain futures rebounded this week amid optimism that Europe is closer to resolving its debt crisis. The move by the Federal Reserve and world central banks to increase liquidity by reducing the rate for U.S. dollar swaps is literally grasping for straws. Intervention alone is not a long-term fix for Europe’s economy. To prevent it from sinking, austerity measures must be taken as well. In other developments, the U.S. faces increased export competition from the Black Sea region. Corn exports are running 15 percent behind a year ago with inspections last week at 30.5 MB. The trend following funds are abandoning their long corn position as they liquidated 240 MB last week reducing it to 415 MB. Since 2010, they have cut their position 77 percent. Meanwhile, the index funds increased their longs 120 MB to 1.775 BB.
March corn bottomed last week at 588.25 setting a short or an intermediate-term low. Currently, the wave pattern favors it being a short-term bottom. Prices rebounded to 616 on Wednesday and peaked. A break below 595 turns the short-term trend down and projects a decline to 580 or 570 as the next low. Meanwhile, a rally and close beyond 623 suggests that an intermediate-term low developed at 588.25 instead. In this event, look for a recovery to 642 or 655. Longer term, however, the trend is down with the potential for a sell-off to 545 or 530. A more bearish pattern points to a decline to 475 or 440. Seasonally, corn futures generally trend lower until the end of December or early January. Cycle analysis shows a bottom developing on December 27th or during the period of January 3rd-6th. However, if we trade to the lower targets mentioned, a bottom may not develop until February 3rd or February 7th. Next week, the odds are 70 percent that March corn will be lower.
Soybean futures recovered this week because of oversold conditions, strength in the financial markets, and optimism that the debt crisis in Europe can be resolved. However, price gains will be limited as crop conditions are near ideal in South America and exports are running 33 percent behind last year. Inspections last week were 41.4 MB and above the average needed to reach USDA’s projection of 1.325 MB. China took 30.9 MB or 74 percent of shipments. In other developments, the trend following funds are becoming more bearish as they increased their short position 90 MB to 120 MB. They moved to a short position two weeks ago, which is the first time they have been short since July 2010. In the meantime, the longs of the index funds grew 15 MB to 810 MB.
March soybeans fell to 1111.75 last week, which is likely a short-term low. Prices rebounded to 1155.25 on Wednesday and peaked. A decline below 1121 turns the short-term trend lower and projects a move downward to 1095-1085 as the next bottom. Meanwhile, a rally and close beyond 1167 suggests that an intermediate-term low occurred at 1111.75 instead. In this case, we could climb to 1200. However, the longer-term trend is down with the potential for a sell-off to 1060. A more bearish pattern, the one that is likely developing, points to a decline to 980. From a seasonal perspective, soybean futures usually trend lower until the end of February. Cycle analysis points to a bottom occurring on December 14th or December 19th. However, it may be an intermediate-term low. A more important bottom may not develop until January 19th or February 19th. Next week, the odds are even as to whether March futures will be higher or lower.
There is a dearth of fresh news in wheat with the market following the direction of corn and soybeans, as well as the financial markets. Although there is little fundamental justification for a recovery, the trend following funds are short a record 435 MB, which could fuel a rebound. In other developments, exports are sluggish and running seven percent less than a year ago. Inspections last week were 15.3 MB and below the average needed to reach USDA’s projection of 975 MB. Export sales have been poor this season because of increased competition from the Black Sea region. Meanwhile, the U.S. wheat crop is improving as 52 percent of the crop is rated in good-to-excellent condition compared to 50 percent last week and 47 percent a year ago.
March wheat bottomed at 586 last week and rebounded to 629.25 on Wednesday. Wednesday’s high is likely a short-term top, although a recovery to 635-645 cannot be ruled out. Meanwhile, a close below 602 turns the short-term trend down suggesting a test of 586 again. Longer-term, the trend is lower with the market at risk for a sell-off to 535, 520 or 500. Seasonally, wheat futures tend to bottom in mid December followed by a recovery into January. Cycle analysis points to a low occurring on December 15th or December 20th. Next week, the odds are 80 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.