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Corn futures are in the tank from uncertainty of the fiscal cliff, evening of positions for year-end, and poor exports. Exports for the season are one of the worst on record, although inspections last week were better than expected at 15.0 MB. We are nearly one-fourth of the way through the marketing year with shipments running 48 percent below a year ago. If the current pace continues, they will run closer to 950 MB rather than USDA’s current projection of 1.150 BB. Adding to the market’s woes, the trend following funds sold 250 MB last week reducing their long futures position to 765 MB. Meanwhile, the index funds increased their longs slightly to 1.825 BB.
On Wednesday, March corn fell breaking support at 714.25 and the low made in September at 708.75. Prices traded to 687.5 on Thursday but are probably headed to 678 before the sell-off from 767.5 is done. A bottom should occur by December 27th. From a seasonal perspective, corn futures tend to establish a low in late December followed by a recovery into mid January. If we follow the norm, a rebound to 715 or 725 could unfold once the decline is over. Longer-term, the trend is down with the potential for prices falling to 640 or even 600 with a bottom occurring in late February. A more bearish pattern points to a sell-off to 565. Next week, the odds are 70 percent that March futures will be higher.
Improving conditions in South America and reports of China canceling two sales caused prices to crater this week. In addition, wet conditions in Argentina suggest that producers will likely switch more acres from corn to soybeans. Inspections last week were 36.9 MB, the lowest seen since September. Shipments peaked in mid November with the four-week average having fallen nearly 38 percent. Last week, China took 23.1 MB or 62 percent of exports. Shipments to them have been declining since the middle of last month. Meanwhile, the trend following funds remain bullish as they increased their long futures position 75 MB last week to 445 MB. The longs of the index funds rose 10 MB to 670 MB.
Last week’s comments mentioned that March soybeans were subject to a break to 1425, and that has occurred. Prices fell to 1397.75 on Thursday, a decline of 6.9 percent from the peak at 1501.25. Additional support is at 1387. A bottom is due anytime; however, a period of consolidation is likely until January 2nd. Look for initial resistance to be met on a bounce to 1435 followed by 1455. Seasonally, soybean futures have a tendency to rebound from late December until mid January. If we follow the norm, the potential exists for rising past 1501.25 later next month unless there is a sell-off below 1356. Next week, the odds are even as to whether March soybeans will be higher or lower.
Wheat futures have been on the defensive because of weaker corn values and a snowstorm occurring in the southern Plains. However, the drought continues and additional moisture is needed. Export interest in U.S. has picked up somewhat as inspections last week were in the upper end of estimates at 16.3 MB. However, additional sales are needed to reach USDA’s projection of 1.050 BB. The trend following funds are becoming more bearish as they increased their short position last week 100 MB to 215 MB. This is the largest short position they have held since June. Meanwhile, the index funds increased their longs 10 MB to 915 MB.
March wheat has been on the downswing since peaking late last month at 895.5. Last week’s comments mentioned that a decline to 775 was expected before the sell-off was done. Price fell to 782.5 on Thursday. A low should occur by December 26th. Seasonally, wheat futures tend to recover from the end of December until mid January. Once prices bottom, a rebound to 825 is expected. Longer-term, there is a chance that the sell-off will continue to 755 or lower. 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.