On The Money Grain Commentary 12-5-13

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Corn Outlook:

Corn has rebounded the past few sessions although fresh supportive news is lacking.  Production for 2013-14 stands the chance of topping 14.0 BB with ending stocks in excess of 2.0 BB.  Although acreage may be down in South America, favorable crop conditions are forecast during the next two weeks casting bright production prospects.  Export inspections last week totaled 35.6 MB and were above the average needed to reach USDA’s forecast.  This was the second consecutive week that the pace of shipments has improved so, maybe, prices are beginning to find a level that attracts demand.  However, this is still a work in progress.  The trend following funds are bearish holding a short position of 1.020 BB.  During the past few days, they have lightened the load which has given futures a boost.  Improved ethanol margins have also supported.  Longer-term, however, the bears may not go into hibernation until spring, or adverse weather develops in South America.

March corn bottomed on Monday at 418.5 followed by a rebound to 439.5 Wednesday.  Additional resistance is at 449.5.  A rally beyond this level is needed to turn the intermediate-term trend up.  Unless it happens, the market is at risk for a longer-term decline to 387.  From a seasonal perspective, corn futures generally work lower from December into early January before an important low develops.  Cycle analysis points to a bottom occurring around December 30th or January 6th, although it could be as late as January 28th.  Next week, the odds are 60 percent that March corn will be down.

Bean Outlook:

     Soybean futures staged a good run in November posting a gain of 7 percent because of strong exports to China.  However, that could be ending.  Inspections last week were below estimates at 52.6 MB with China taking 36.7 MB or 69 percent of shipments.  While this is not a paltry number, the pace of shipments has fallen two consecutive weeks suggesting that they are peaking.  If this is the case, China’s interest may be turning to South America, which is expected to have a huge supply.  Expectations are that Brazil will produce a record crop of 88.0 MB.  So far, growing conditions in South America are good, but that could change.  However, no threatening forecast is on the horizon.  Meanwhile, the long position of the trend following funds has reached 545 MB, their largest since June.  At that time, prices fell 12 percent which suggests that the bulls have probably factored in most of the current bullish news.

      March soybeans peaked on Monday at 1327 and fell to 1297.5 Tuesday.  A five-wave decline is visible on the short-term chart to this low suggesting that the recovery from 1233.25 may be done.  A sell-off below 1297.5 is needed for confirmation.  In that event, the potential exists for a move downward to 1182-1175 for the intermediate-term, and possibly 1057-1048 longer-term.  Seasonally, soybean futures usually peak by early December followed by a decline until the end of February.  If we follow the norm, prices could trend downward until January 21st, February 3rd, February 17th, or March 10th.  Short-term, if 1327 is exceeded, look for the recovery continuing to 1345-1355 before topping.  Next week, the odds are 55 percent that March soybeans will be lower.

 Wheat Outlook:

The wheat crop has gone into dormancy and snow cover is needed in the Plains for protection against freezing conditions.  Export inspections last week were 15.5 MB and below the average needed to reach USDA’s projection of 1.1 BB.  So far, we are on track to achieve their target.  Meanwhile, futures were pressured mid week from the forecast for an increase in output from Canada and Australia.  Be aware that the trend following funds are sporting a record short position of 520 MB which could spark a short covering rally for no fundamental reason.

March wheat rose to 674.75 on Monday and backed off.  Last week, the trend indicators turned up but have since flattened.  Seasonally, there is a tendency for wheat to move higher until mid January.  However, the break below last month’s low at 652 increases the chance that a breach of the contract low at 647.75 may be forthcoming.  If it fails, look for a decline to 638.  This situation is still developing.  Next week, the odds are even as to whether March wheat will be higher or 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.