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Corn futures have been catching flack recently from China rejecting shipments of U.S. corn containing an unapproved genetic trait, or GMO. So far, China has turned away 180,000 metric tons that contain the substance. The cancellations have prompted a visit by Ag Secretary Vilsack and other trade representatives to address the issue. Also, adding pressure is a proposed bill from a group of Senators that would eliminate the mandate on ethanol blended with gasoline. In other developments, export inspections were below estimates at 25.0 MB, as well as the average needed to reach USDA’s projection of 1.450 BB. Last week, the trend following funds reduced their short futures position 110 MB to 830 MB. Look for trading volume to wind down during the next two weeks because of the holidays, which could create periods of increased volatility.
March corn bottomed at 420.5 on Monday followed by a rebound to 431 Thursday. This was just above the contract low set earlier this month at 418.5. Resistance is expected to be met at 433-435. Unless there is a rally past 440.75 setting a higher high, the trend is down with the potential for a sell-off to 405 and possibly 387 later. Seasonally, corn futures usually work lower until the first week of January. Depending upon how soon the downtrend resumes, a bottom could develop around January 8th. However, if the correction from 418.5 lingers into the middle of next week, a low is not likely until January 24th, possibly later. Next week, the odds are 70 percent that March corn will be higher.
Traders have been anticipating that up to 2.0 million tons of sales to China may be canceled and replaced by South America. So far, it has not developed. Because of the tightness of U.S. ending stocks, they may simply be waiting until they have greater assurance of South America’s production. Weather there remains favorable, but the forecast is for warmer, drier conditions during the next few days. Export inspections last week were above estimates at 62.5 MB with China taking 36.7 MB or 58 percent of shipments. While sales to China have been torrid this season, the pace of shipments peaked in mid November and has fallen 26.0 percent. However, this has not deterred enthusiasm of the trend following funds as their long position rose 75 MB last week to 650 MB. This is their largest position held since November 2012. My fear is that when they liquidate their longs, they could throw the baby out with the bath water. The big question is, will they take profit before year end?
March soybeans rose to 1339 on Wednesday where a key reversal occurred, possibly ending the recovery from the low made in November at 1233.25. Resistance is expected on a bounce to 1325. One pattern being observed shows that a period of consolidation is likely until January 8th with support developing on a pullback to 1286-1274. Meanwhile, the other pattern is more bearish and points to a sell-off below 1233.25 to 1195, 1168 or 1140 with a bottom occurring around February 19th or March 5th. Which path the market takes will largely be determined by whether there are large sales cancellations by China. Be aware that when soybeans peak in December, they generally trend downward until the end of February. Next week, the odds are even as to whether March soybeans will be higher or lower.
Wheat seems to have few friends as the market has been in a relentless decline since October. This is attributed to world ending stocks rising because of increased production in Australia and Canada. Adding to bearish sentiment is that Egypt recently snubbed the U.S. in favor of purchases from France and Romania. Last week, export inspections were at the lower end of guesses at 17.5 MB, but above the average needed to reach USDA’s projection of 1.1 BB. However, the current pace of shipments shows that it will be a stretch in reaching their target. In the meantime, the trend following funds are emboldened as they are sporting a record short position of 520 MB. Although there is little positive news fundamentally, the forest is becoming overpopulated with bears.
March wheat has been on a downward spiral since topping earlier this month at 674.75. Prices fell to 610 on Thursday and should find support at 605 from where a 20-25 cent bounce is due. The wave pattern shows that if this occurs, it should be followed by a decline to 588 and, maybe, 564. As it stands now, a low ending the sell-off from the contract high at 912.75 may not be finished until around January 7th, January 13th or January 20th. Next week, the odds are 60 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.