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The bulls were expecting the USDA to lower ending stocks this month and were pleased when they fell below estimates to 1.481 BB, a reduction of 150 MB from January. A 150 MB rise in exports to 1.6 BB was attributed to the decline in stocks. While export sales have been strong recently, the pace of shipments needed to reach USDA’s target is lagging. Shipments must pick up to meet their projection, or sales cancellations may be forthcoming. Feed consumption was left unchanged in the report at 5.3 BB, and is 22 percent above a year ago. This seems peculiar since the cattle herd is at a 60 year low, while hog numbers are down from the outbreak of the PED virus. Perhaps USDA will address this issue in the April report. In the meantime, corn’s support up to this point has been from the liquidation of short positions during the past five weeks by the trend following funds. Last week, they shed a whopping 300 MB reducing their shorts to 365 MB.
March corn traded to 449 on Monday followed by a setback to 437.25 Tuesday. Since January, the market has been recovering from the contract low at 406.25. This week, the momentum and trend indicators turned sideways to lower suggesting that the correction may be done. For evidence of this, a decline and preferably a close below 437 is needed. In that event, a break to 422-420 is expected, although one pattern on the weekly chart shows the chance for falling below the contract low. Short-term, should prices rise past 446, we probably have more on the upside to 451 or 456 before the recovery from 406.25 complete. Next week, the odds are 70 percent that March corn will be higher.
The bulls did not get what they wanted when the USDA left ending stocks of soybeans unchanged at 150 MB. Most were anticipating a reduction. While domestic inventory remains tight, world ending stocks grew slightly to 73.0 million tons putting stocks-to-usage at 27.1 percent. This is at the upper end of the twenty-year range reflecting that stocks are more than ample to meet demand. Argentina’s production fell 500,000 tons to 24.0 million, while Brazil’s crop is forecast to be a record 90.0 million tons. Harvest is underway in Brazil with better than expected yields being reported. This implies that further increases in production by the USDA may be forthcoming. On February 21st, traders will get their first glimpse at spring planting indications in USDA’s Ag Outlook Forum. In other developments, the trend following funds added 55 MB to their long futures position last week increasing it to 610 MB.
March soybeans rose to 1340 on Monday and challenged this level again Wednesday posting a double top. The market backed off from here but turned up and traded to 1347.5 on Thursday. Right now, we stand the chance for rising to 1355 and, maybe, 1366. Be alert for a top by the middle of next week. Currently, the momentum and trend indicators are at their highest level since December. Key support is at 1322 followed by 1312. Next week, the odds are 70 percent that March futures will be higher.
Wheat received a bonus this week when the USDA lowered ending stocks more than expected to 558 MB, a 50 MB reduction from last month. The reduction came from a 50 MB increase in exports. World stocks fell slightly to 183.7 million tons putting stocks-to-usage at 26.1 percent. This is in the lower third of the twenty-year range suggesting that stocks could become snug if winterkill in the U.S. becomes a factor. Production also fell in the former Soviet Union, and Kazakhstan which may boost U.S. exports. Meanwhile, recent support in wheat has been from the liquidation of short positions by the trend following funds. Last week, they trimmed 30 MB from their position reducing it to 450 MB. Additional liquidation may be in the cards possibly giving the market a lift.
March wheat rose to 598.25 on Wednesday and posted a downside reversal. However, the market recovered Thursday rising to 596.75. If 598.5 is exceeded, look for the recovery continuing to 609. For now, a decline below 566 is needed for confirmation that the rebound from 550.25 is over. In that event, the longer-term wave pattern points to a sell-off to 520 which should complete the sell-off from the contract high at 912.75. 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.