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Corn futures have been resilient the past couple of weeks even though China cancelled 15-20 cargoes because they did not meet GMO standards. The market’s strength has been credited to short covering by the funds ahead of year end. However, prices backpedaled on Thursday and rattled the bears cage. In the supply-demand report, ending stocks for 2013-14 were lowered to 1.792 BB from 1.861 BB in November. World stocks fell 1.1 percent to 162.4 million tons. This put global stocks-to-usage at 17.3 percent and in the lower third of the twenty-year range. In January, the final report will likely show an increase in production, as well as ending stocks. Last week, the trend following funds trimmed their short futures position by 80 MB reducing it to 940 MB. For now, look for weather in South America to take on a greater role with planting intentions next spring becoming a hot topic after the first of the year.
March corn has been in a choppy trade higher since bottoming earlier this month at 418.5. The oscillators used to confirm wave patterns show that an intermediate-term low has developed ending the sell-off from the August high at 520. If this is the case, a sideways trend is likely with resistance expected at 443 followed by 450. Look for a high around December 19th if Tuesday’s top at 439.75 is exceeded. Meanwhile, Thursday’s decline below support at 430 has created some technical fallout; however, prices recovered and managed to close above mid range. Longer-term, the trend is down with the potential for a sell-off to 387. The cycles show that a bottom could occur as soon as January 7th, but may be as late as March 7th. Next week, the odds are 60 percent that March corn will be higher.
Strong sales to China continue to support soybeans. However, when the Chinese are comfortable with the size of the crop in South America, the music will end. So far, growing conditions in Brazil and Argentina are favorable. The supply-demand report for December showed 2013-14 ending stocks of soybeans falling to 150 MB from 170 MB in November. World stocks were up slightly to 70.6 million tons. This put global stocks-to-usage at 26.0 percent and in the upper third of the twenty-year range. Argentina’s crop rose 1.0 million tons to 54.4 million while Brazil’s output was unchanged at 88.0 million tons. However, if weather stays favorable, their production will likely go up another couple of million tons. Last week, the long position of the trend following funds rose 30 MB to 575 MB. This is the largest position they have held since September suggesting the market is becoming overextended. At that time, prices fell 10.5 percent.
March soybeans have moved steadily higher since bottoming in early November at 1233.25. The seasonal trend usually starts lower by this time of the season but, so far, the uptrend has been steadfast. However, that may be changing. Prices rose to 1335 on Tuesday and backed off. Thursday’s decline created an outside day down and implies that the recovery could be ending. A sell-off below 1302 is needed for verification. In the meantime, look for resistance at 1345-1351 if 1335 is exceeded. Longer-term, once the recovery is complete, the prospect exists for a sell-off below 1233.25 to 1170, 1135 or 1100. This could occur by January 21st, although it may be closer to February 11th or February 25 when a seasonal bottom is due. Next week, the odds are 60 percent that March futures will be lower.
Wheat continues to struggle and finds difficulty in mounting an offense. The market got no help from the supply-demand report which showed 2013-14 ending stocks rising to 575 MB from 565 MB in November. In addition, world ending stocks grew 2.4 percent to 182.7 million tons. Australia’s crop grew 1.0 million tons while Canada’s output rose 4.3 million. Global stocks-to-usage are currently 25.9 percent and in the lower third of the twenty-year range. Last week, the trend following funds trimmed 25 MB from their short position reducing it to 495 MB. While the market may lack the fundamental spark for a recovery, the funds are still holding a hefty short position.
Seasonally, wheat futures generally move higher until mid January, but that does not look to be the case this year, especially with the bearish supply-demand report. When the report was released on Tuesday, March wheat wasted no time in breaking the contract low at 647.75. Although the wave pattern shows that we are in the mature stage of the sell-off from the contract high at 912.25, it appears that prices may fall to 615 before it is done. This could occur by December 28th, January 7th or January 13th. For now, a rally past 674.75 is needed to turn the trend up. Next week, the odds are 80 percent that March wheat will be higher.
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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.