On The Money Grain Commentary 12-29-11

Corn Outlook:

     Very little news is coming out of Europe, which has prompted speculators to shift their focus to weather in South America rather than the debt crisis.  Conditions are dryer than normal, especially in Argentina, which has created a surge in grain futures.  During the holidays, volume tends to be thin as commercial activity dries up and can lead to exaggerated price swings.  This season is no exception as corn prices have risen 12.1 percent in a two-week period.  While a reduction in South America’s corn crop is possible, world stocks are sufficient to meet demand.  Export inspections were 39.0 MB with cumulative shipments running 6 percent behind a year ago.  The trend following funds continue to reduce their longs as their position has fallen 30 MB to 220 MB.  Meanwhile, the index funds added 30 MB to their long futures increasing them to 1.820 BB.      

     December corn closed higher for eight consecutive sessions before peaking on Wednesday at 646.25.  Additional resistance is at 650-655.  Open interest declined on the rally meaning that it is short covering, not new buying.  Bulls beware!  The short-term cycle points to a top occurring by January 3rd.  Meanwhile, a close below 630 suggests that the recovery is over.  As it stands now, an irregular correction appears to be developing from the October low at 586, the high made in November at 676.25, and the low made earlier this month at 576.25.  Once it is complete, the downtrend should resume.  The long-term wave pattern points to a decline to 530, while a more bearish outlook shows the potential for a sell-off to 475 or 440.  Currently, the cycles indicate a more important bottom developing on January 25th or during the period of February 7th-10th.  In January, corn futures are lower 52 percent of the time.  Next week, the odds are 70 percent that March corn will be down. 

Bean Outlook:

       Soybean futures have rallied 10 percent during the past couple of weeks fueled by dryness in South America.  Although rain has fallen, it has not met the bulls’ satisfaction.  Volume is light because of the holidays, which is allowing speculators to have their way, as cash sales are lacking to offset buying interest.  Meanwhile, export inspections were 38.2 MB and trail last year by 32 percent.  China took 30.8 MB or 80 percent of shipments.  Right now, traders are betting that if a shortfall in South America occurs, it could increase demand for U.S. soybeans.  Meanwhile, the trend following funds have reduced their short position 20 MB to 60 MB, while the index funds increased their longs 15 MB to 800 MB.   

     March soybeans are following a pattern similar to corn in that prices rose nine consecutive sessions where a candlestick top developed on Wednesday at 1218.75.  Open interest declined on the rally, which means that it is not new buying, but rather, short covering.  The recovery may be over, but unless there is a close below 1193, a rally to 1232 or 1243 cannot be ruled out.  The short-term cycles point to a top occurring by January 3rd.  Once the recovery is complete, the downtrend should resume with the long-term pattern showing the potential for a sell-off to 1060 or possibly 980.  Right now, the cycles are not clear on a bottom, but one could occur on January 31st or February 9th which coincides with a seasonal low.  In January, soybean futures are lower 73 percent of the time.  Next week, the odds are even as to whether March futures will be higher or lower.

 Wheat Outlook:

     Wheat futures are riding higher on the coattail of corn and soybeans although world stocks are climbing.  Meanwhile, conditions in the southern Plains are improving from recent rain and snowfall.  Export inspections were 13.4 MB and are running 10 percent below a year ago.  At this time, the major supportive influence for wheat, which could cause additional price strength, is that the trend following funds are short 420 MB.  This is just below the record of 435 MB set a few weeks ago.  Meanwhile, the index funds are long 925 MB.   

     March wheat rose for eight straight sessions where a top occurred on Wednesday at 656.  If it is exceeded, there is a chance of working higher to 661-667 before the rally from the low made earlier this month at 577.25 ends.  Be alert for a top that could occur by January 4th.  Unless prices close beyond 689, we are subject to a decline to 530.  Meanwhile, a close past 689 breaks the series of lower highs and lower lows that have been unfolding from the contract high at 994.75 and turns the trend higher.  In January, wheat futures are higher 52 percent of the time.  Next week, the odds are 60 percent that March wheat will be lower.

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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.