On The Money Grain Commentary 12-8-11

Corn Outlook:

     Grain futures are struggling amid uncertainty surrounding the European debt crisis and poor exports.  Currently, traders are unsure which way to turn going into the EU summit meeting on Thursday-Friday.  Anxiety is high as there are fifteen countries facing a potential credit rating downgrade.  The reality is there is no quick fix and strict austerity measures are needed.  In other developments, corn export inspections were better than expected at 38.5 MB but shipments lag 10 percent behind last year.  The issue facing corn is that large traders are abandoning commodities.  Last week, the trend following funds liquidated 70 MB of their long corn position reducing it to 345 MB.  In September, they were long 1.355 BB.  The index funds increased their longs 50 MB to 1.825 BB.  However, it is down from the record of 2.250 BB in August 2010.

     March corn fell to 580 on Tuesday, which probably ended the decline from the high made in November at 676.25.  Prices rebounded on Wednesday and fell to 585 Thursday from where there was a reversal higher.  Usually corn futures are prone to a bump higher for a few days during this time of the month.  Resistance is at 605 but we could rise to 612-617 or 625 with the help of a friendly supply-demand report.  If it occurs, a top could develop on December 16th.  Longer-term, the wave pattern shows the potential for a decline to 475 or 440.  Cycle analysis points to a bottom occurring on December 27th or during the period of January 3rd-6th.  However, it will probably be an intermediate-term low.  A longer-term low may not develop until February 3rd or later.  Next week, the odds are 60 percent that March corn will be lower.

Bean Outlook:

      Soybean futures are being influenced by the outlook in Europe and potential record crop in South America.  Recently, weather has turned dry in areas of Brazil but is not considered a significant threat.  However, it has offered price support during the past few sessions.  Export inspections last week were less than expected at 31.6 MB with China taking 24.6 MB or 78 percent of shipments.  Exports are running 13 percent below their peak in early November and are down 32 percent from a year ago.  In other developments, the trend following funds are short 235 MB of soybeans, while the index funds are long 805 MB.  However, the index funds are in a liquidation mode as their position has fallen from the record of 1.005 BB set in November 2010.

      March soybeans peaked on Monday at 1158.57 followed by a decline to 1130 Tuesday.  The market has consolidated the past couple of sessions, and unless 1130 fails, prices could challenge 1158.75 again or rise to 1177.  Be advised that the recovery from last month’s low at 1111.75 is a countertrend rally and lower prices are expected.  Unless 1216 is exceeded, which breaks the series of lower lows and lower highs from 1290, the trend is down with the potential for a sell-off to 1060.  A more bearish pattern points to a decline to 980.  Cycle analysis shows a bottom developing on December 23rd or January 3rd, but it will likely be an intermediate-term low.  A longer-term low may not develop until January 19th or February 19th.  Next week the odds are 55 percent that March soybeans will be lower.

 Wheat Outlook:

      Wheat has limited upside potential because of the debt crisis overhanging Europe, poor demand, and a potential record crop in Australia.  Inspections last week were lackluster at 14.4 MB and below the average needed to reach USDA’s projection of 975 MB.  Cumulative shipments are running 7 percent behind a year ago.  The biggest supportive factor in wheat is that the trend following funds are short 415 MB, which is down slightly from the record set a week ago at 435 MB.  This suggests that an item of bullish input could spark a short covering rally.  Meanwhile, the index funds are long 925 MB but have been in a liquidation mode from the peak set in September of 1.035 BB.     

     March wheat peaked at 632 late last week and has since been on the defensive.  The market is oversold short-term and due for a bounce.  Right now, a rebound beyond 617 is needed to instill confidence that we will trade past 632.  In the meantime, a sell-off below last month’s low at 586 projects a move downward to 555 as the next bottom.  Longer-term, the potential exists for a decline to 530, 520 or 500.  Cycle analysis points to a low developing on December 20th or December 27th.  Seasonally, wheat futures tend to bottom in mid to late December followed by a recovery into January.  Next week, the odds are even as to whether March wheat will be higher or lower.

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