The ship for the grains is listing, and the funds are bailing. Although domestic stocks of corn are tight and dryness is creeping into South America, they are overshadowed by other issues. World stocks are on the upswing, China’s production is rebounding, and U.S. exports face stiff competition from the southern hemisphere. In addition, the debt crisis in Europe poses deflationary implications, and the funds are reducing their exposure to commodities. Last week, the long position of the trend following funds fell 85 MB to 260 MB, while the longs of the index funds were down 20 MB to 1.805 BB. If deleveraging continues, corn futures could be headed much lower. In other developments, export inspections were 35.6 MB with cumulative shipments running ten percent behind a year ago.
March corn fell to 576.25 on Thursday breaking last week’s low at 580. Failing to trade past resistance at 603.25 and falling below support instead suggests that the sell-off from the November high at 676.25 could be extending. If this is the case, a decline to 565 or 545 may be the next low. A bottom is due late this month or early January, but it may be an intermediate-term low. This coincides with the timing for a seasonal bottom. Longer-term, the wave pattern shows the potential for a decline to 475 or 440, while a head and shoulders pattern points to a sell-off to 377. Cycle analysis indicates a longer-term bottom developing early February or later. Right now, a rally and close beyond 603.25 is needed to turn the trend higher. Next week, the odds are 60 percent that March futures will be higher.
Worries regarding the European debt crisis were trumped this week by recent dryness in South America. Although no major weather threats are on the horizon, close tabs are being kept on the situation. Keep in mind that global stocks-to-usage are in the upper third of the twenty-year range suggesting that soybean supplies are abundant. Export inspections were less than expected at 29.7 MB, the lowest level seen since early October. The pace peaked in early November and has fallen 25 percent. Meanwhile, cumulative shipments are running 33 percent below last year. China took 19.9 MB or 66 percent of shipments. In other developments, the trend following funds are short 115 MB of soybeans, while the index funds are long 805 MB.
March soybeans traded to 1137.5 on Tuesday followed by a decline to 1104.5 Wednesday. This is likely a short-term bottom with resistance is expected on a bounce to 1130. Since peaking in October at 1290, a series of lower highs and lower lows have been developing. Unless 1158.75 is exceeded, the trend is down with a decline to 1085 or 1060 likely. Longer-term, the wave pattern points to a sell-off to 980. Cycle analysis shows a bottom occurring late December or early January. However, it will probably be an intermediate-term low. A longer-term low may not develop until mid January or early February. Next week, the odds are 60 percent that March futures will be lower.
U.S. and global wheat stocks are rising, while exports are declining, which does not bode well for a higher price outlook. Fundamentally, wheat is the weakest of the grains. In addition, the market faces stiff competition from strength in the dollar and increased exports from the Black Sea region. Export inspections last week were 16.6 MB with cumulative shipments running seven percent below last year. In other developments, the trend following funds reduced their short futures position 20 MB to 395 MB, while the longs of the index funds grew 15 MB to 940 MB. Be advised that the longs of the index funds are down 18 percent from the peak of 1.145 BB in May 2010.
March wheat peaked at 609 on Tuesday and fell to 579.75 Thursday, which is likely a short-term bottom. Unless 609 is exceeded, we are on track for heading to 555 as the next low. Since peaking in May at 994.75, a series of lower highs and lower lows have been unfolding. Unless there is a close beyond 637, the longer-term trend is down with the potential for a sell-off to 530, 520 or 500. Cycle analysis points to a bottom occurring late December. However, it may be an intermediate-term low. A longer-term low may not develop until mid January or later. Next week, the odds are 80 percent that March futures will be higher.
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