On The Money Grain Commentary 12-13-12

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Corn Outlook:

     Corn futures have been facing a strong headwind because of dismal exports and strong competition from South America.  For the season, cumulative shipments are running 50 percent below a year ago.  The current trend implies exports of 960 MB.  Meanwhile, the USDA left their export and ethanol projections unchanged in the December Supply-Demand Report.  Ending stocks for 2012-13 were untouched at 647 MB.  The USDA is obviously waiting until the January Report before making any changes.  In other developments, the trend following funds are bullish and have added to their long futures position for the third consecutive week.  Last week, they increased their longs 90 MB raising them to 1.015 BB.  The index funds have been inactive the past couple of weeks maintaining a long position of 1.820 BB.       

     March corn has been on the downswing since peaking last month at 767.5.  We have been down for six consecutive days, are knocking on the door of support at 714.25, and could flirt with the September low at 708.75.  Look for initial resistance on a bounce to 728 followed by 735.  Seasonally, the tendency is for corn to work lower until the end of December or the first week of January.  Keep in mind that the trend following funds have been adding to their long futures position for three weeks which are now underwater.  If support at 708.75 cannot hold, it could trigger long liquidation and a sell-off to 680.  Next week, the odds are 60 percent that March corn will be higher.

Bean Outlook:

      Strong exports have been the supportive factor for soybeans this year, but cracks are starting to surface.  The four-week average of shipments peaked three weeks ago with the pace falling 17 percent.  In addition, shipments to China have been declining since late October.  Meanwhile, the USDA left their export projection unchanged in the December Supply-Demand Report but raised the crush 10 MB.  This resulted in 2012-13 ending stocks falling to 130 MB.  In other developments, the long futures position of the trend following funds rose slightly last week.  However, they have been liquidating their longs since May.  The index funds are long 660 MB.    

      March soybeans fell to 1452.5 on Monday followed by a rebound to 1486.25 Tuesday.  Last week, the market peaked at 1493.75 and is subject to a pullback to 1425.  This will be confirmed by a sell-off below Monday’s low.  If 1493.75 is exceeded, however, look for additional upside potential to 1505 or 1520 before there is a break.  Seasonally, soybean futures tend to trend lower until the third week of the month followed by a bounce into early to mid January.  If we follow the norm and a setback materializes, a bottom could occur on December 19th or December 26th.  Longer-term, the market is in a recovery from the November low at 1356 in which prices could reach 1545 or possibly 1590 in mid January.  Next week, the odds are 60 percent that March soybeans will be lower. 

 Wheat Outlook:

     Wheat futures are having a difficult time even though dryness persists in the southern Plains.  In the December Supply-Demand Report, the USDA lowered their export projection 50 MB resulting in 2012-13 ending stocks rising to 754 MB.  Meanwhile, world-ending stocks grew 1.6 percent because of a 2.6 million ton increase in China’s production, as well as an upward revision in Australia and Canada.  This was greater than traders expected and lessens concerns about supply.  Meanwhile, the trend following funds are becoming more bearish and have increased their short position to 115 MB.  However, the index funds are long 905 MB.    

     March wheat tumbled below support at 845 this week resulting in a downside breakout of the channel pattern that had been unfolding from the contract high at 948.25.  This greatly reduces the chance for rising to a new high.  Prices are currently oversold and due for a bounce to 825-830.  However, a break to 775 is likely before the sell-off from 895.5 is done.  Keep in mind there is a seasonal tendency for wheat futures to work higher into mid January.    Next week, the odds are 80 percent that March wheat will be up.

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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.