China raised lending rates by .25 percent causing a knee-jerk reaction lower in the grains early this week. The rates were ratcheted upward in an effort to fend off inflation and contain prices. However, the rate increase was soon forgotten when the USDA lowered 2010-11 ending corn stocks 70 MB to 675 MB on Wednesday. The reduction was the result of a 50 MB increase in ethanol production. Corn futures traded near limit higher as the report was construed bullish. In other developments, export inspections were 26.6 MB and are running 29 percent below the pace needed to reach USDA’s projection of 1.950 BB. The trend following funds increased their long position 125 MB to 1.780 BB., while the longs of the index funds fell 25 MB to 2.010 BB.
March corn has risen to the targets mentioned in previous comments at 690 and 705. The next objective is at 715. Meanwhile, there is a more bullish pattern in the early stages of development showing that prices could rally as high as 735, 745, or possibly 780. If they climb to 735-745, we could top on February 18th. However, if the advance continues to 780, we will likely not peak until the end of February or early March. More will be mentioned as the pattern unfolds. Right now, the trend is up unless there is a close below 673. In the meantime, be advised that the market is in the later stage of its advance from the November low at 520.25 and the contract low at 356.75. The long-term pattern shows that when a top occurs, it will likely be a multi-year high. Next week, the odds are 70 percent that March futures will be higher.
The rate increase by China raises concerns that their imports of soybeans may cool. However, previous rate increases over the past few months have not curbed their appetite. Export inspections last week were 41.3 MB with China taking 21.5 MB or 52 percent of the shipments. On Wednesday, the USDA left their 2010-11 ending stocks estimate unchanged at 140 MB. Production in Argentina was lowered 1.0 million tons to 49.5 million, while Brazil’s crop grew 1.0 million tons to 68.5 million. Overall, the report was considered neutral. In other developments, the trend following funds have added 70 MB to their long position increasing it to 775 MB. This is slightly short of the record set in November at 800 MB. Meanwhile, the longs of the index funds grew 35 MB to 925 MB, which is below the record at 1.005 BB.
March soybeans traded to 1455.75 this week, which is near the target at 1460. The trend is up unless there is a decline below 1414. One pattern under observation shows prices climbing to 1495, while the other points to reaching 1515 or 1530. As it stands now, a top of importance is unlikely until February 18th. Meanwhile, if we rally to 1515 or 1530, it will probably be closer to the end of February. More will be mentioned as developments unfold. However, a close below 1414 forewarns that prices are topping. Be advised that the long-term pattern shows that the market is likely in the later stage of its advance from the November low at 1183 and the contract low at 906.75. When a peak occurs, it has the potential of being a multi-year high. Next week, the odds are 60 percent that March futures will be higher.
The recent sale of 170,000 tons of wheat to Egypt came at a good time as it boosts confidence that demand will not be diminished by the recent political unrest. Meanwhile, there was additional support from the U.N. warning that the drought in China poses a serious threat to their crop. This created a surge in prices on Tuesday. On Wednesday, the USDA left their estimate of 2010-11 wheat unchanged at 818 MB. The report was considered neutral. Export inspections last week were better than expected at 29.7 MB, but below the average needed to reach USDA’s projection of 1.3 BB. In other developments, the trend following funds have increased their long position to 50 MB, while the longs of the index funds stands at 1.025 BB.
March wheat rallied to 893.25 on Wednesday meeting a long-term target at 890. The market has backed off, but, so far, the pullback resembles a correction. Right now, a decline below 844 is needed to turn the trend down. Unless this happens, one pattern under observation points to a move upward to 925. If this develops, prices could stay firm until the end of the month. Meanwhile, if 844 fails, all bets are off. Next week, the odds are even as to whether March futures 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.