On The Money Grain Commentary 12-22-11

Corn Outlook:

     Grain futures can be listless during the holidays but, at times, erratic because of lack of liquidity and year-end position squaring as we are seeing now.  Sometimes, it does not require much news to push prices to an extreme.  For example, recent dryness in South America sparked an 8.4 percent rise in corn futures during the past five days.  Rain has fallen, but there are fears that once it passes, stressful conditions will continue.  In other developments, export inspections were better than expected at 44.0 MB, but cumulative shipments are running 6 percent below a year ago.  In the meantime, the funds continue to liquidate their long position.  Last week, the trend following funds sold 10 MB reducing their longs to 250 MB, while the index funds liquidated 15 MB trimming their position to 1.790 BB.                

     March corn has rallied from the low made on December 15th at 576.25 surpassing resistance at 603.25.  This verified that the sell-off from last month’s high at 676.25 is over and that an intermediate-term bottom has developed.  Prices rose to 625 on Thursday and due for a short-term top.  Support is expected on a pullback to 606, 601, or 595.  Once the setback is over, the market will be in a position for a move upward until January 13th with the chance of reaching 638.  From a seasonal perspective, corn futures tend to work higher until mid January.  Longer-term, the trend is down with the potential for a sell-off to 530.  A more bearish pattern points to a decline to 475 or 440.  Cycle analysis shows that a longer-term low could occur on February 7th, although it may be in March.  Next week, the odds are 70 percent that March futures will be higher.

Bean Outlook:

      Dry conditions in South America have mustered a rebound in soybeans.  While it is early in the growing season to become alarmed about yield losses, the market has little else to trade.  The debt crisis in Europe is not going away anytime soon with banks snatching up loans as quickly as possible from the ECB.  This may ease concerns of a credit crunch short-term, but the root cause of their debt still exists.  Export inspections were less than expected at 31.2 MB with cumulative shipments running 35 percent behind last year.  China took 19.5 MB or 62 percent of shipments.  In other developments, the trend following funds covered 35 MB of their short futures position reducing it to 80 MB.  Meanwhile, the index funds are abandoning their longs as they sold 20 MB trimming their longs to 785 MB.      

     The bottom that was made in March soybeans on December 14th at 1104.5, which was expected to be a short-term low, is an intermediate-term low instead.  This was verified when prices traded past resistance at 1158.75 breaking the series of lower highs and lower lows from 1290.  In addition, if you will notice on the chart, a downtrend line was violated as well.  Prices have since risen to 1177.25 and become overbought short-term.  Support is expected on a setback to the gap left at 1139.75.  For the intermediate-term, the trend is higher with the potential for a recovery to 1197 with 1220 being the extreme.  From a seasonal perspective, soybean futures tend to work upward until early or mid January.  Cycle analysis shows that a top could develop on January 6th or January 13th.  Longer-term, the trend is down with the potential for a sell-off to 1060, while a more bearish pattern points to a decline to 980.  A longer-term low may not occur until February 9th or later.  Next week, the odds are even as to whether March futures will be higher or lower. 

 Wheat Outlook:

     Wheat is at the mercy of corn and soybeans.  World supplies are abundant and the winter storm in the southern Plains should recharge soil moisture.  Last week, export inspections were at the low end of estimates at 16.3 MB, but the pace has improved during the past three weeks.  However, it may not last if the dollar continues its upward path.  Right now, the bulls’ primary advantage is that the trend following funds are short 420 MB, which is 15 MB shy of the record set in late November.  Meanwhile, the index funds continue to reduce their long position that currently stands at 935 MB.

     The cycle low that was due in March wheat on December 20th occurred on the 16th at 577.25 instead.  This appears to be an intermediate-term low in which there could be a recovery to 637 that should be complete by January 4th, although it may not end until January 16th.  This coincides with the period for a seasonal top.  Longer-term, the trend is down with the potential for a sell-off to 530 or 520.  Next week, the odds are 60 percent that March futures will be higher. 

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