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The bulls, who bet on a reduction in South America’s corn crop, have been punished. While the USDA lowered Argentina’s crop 1.0 million tons in the supply-demand report last week, the increase in Brazil resulted in a net rise of 500,000 tons in production. However, there were signs that a sell-off was brewing going into the report as the trend following funds had increased their long futures position 180 MB during the past four weeks. Those positions are now underwater and fund liquidation has followed. Once the selling subsides, prices will stabilize and a correction higher is likely. In other developments, export inspections were 14.4 MB and below the average needed to reach USDA’s revised projection of 900 MB. Currently, shipments are on pace for achieving 775 MB.
It has been a rough slide for March corn as it has fallen ten consecutive days to 687.25 for a decline of 7.9 percent from the high at 746.25. A candlestick-bottoming pattern developed on Wednesday suggesting the sell-off may be over. However, the trend indicators have yet to confirm a bottom. A rally beyond 701 is needed for verification and, in that event, a recovery to 710 or 717 is likely. Be alert for a top on February 20th if it happens. Otherwise, a break below 687.25 warrants a decline to the January low at 678 before the sell-off ends. Keep in mind the seasonal tendency is for corn futures to work higher from the end of February until mid March. Next week, the odds are 60 percent that March corn will be lower.
No change by the USDA in South America’s production, and the U.S. export projection last week has stolen the bulls thunder resulting in a sharp sell-off in soybeans. However, like corn, signs were showing that large traders were becoming too bullish. Since mid January, the trend following funds have increased their long futures position by 300 MB. This was a classic example of “buy the rumor and sell the fact” which resulted in a steep sell-off after the report. In other developments, export inspections were below estimates at 30.1 MB. However, the overall pace of shipments is well above USDA’s current projection of 1.345 BB. While they were not raised in last week’s report, adjustments higher are likely next month.
March soybeans fell to 1404.5 on Wednesday setting a short-term low. A rebound past 1428.75 is needed to turn the near term trend up. In that event, look for a modest recovery to 1440-1450 with a top on February 20th. From here, there could be a break until the end of the month. Meanwhile, if 1404.5 fails, a decline to 1388 is expected before a recovery gets underway. If you will notice on the chart, a trading range has developed from the November low at 1356 and the high made in December at 1501.25. For now, news is lacking to cause a breakout. However, once the South American crop becomes available, a decline to the lower end of the range is plausible. Next week, the odds are 60 percent that March futures will be higher.
Wheat is a follower of corn and soybeans. The ongoing concerns of persistent dryness in the southern Plains cannot seem to muster a rally. The trend following funds are bearish as they added 175 MB to their short position last week increasing it to 425 MB. This is 60 MB shy of the record set in April of 2012 and suggests that the bear population is becoming overcrowded. Export inspections last week were 22.4 MB and below the average needed to reach USDA’s target of 1.050 BB. Shipments are currently running 50 MB below the pace necessary to achieve their projection.
Last week’s comments mentioned that March wheat could fall to 730 or 718. As it turned out, the market fell to 722.5 on Wednesday followed by a rebound to 740.75 Thursday. So far, the bounce from this level resembles a correction suggesting that unless there is a rally beyond 747, prices are likely headed to a longer-term target at 700-697. Seasonally, wheat futures tend to be on the defensive until the end of February or the last week of April. Next week, the odds are 80 percent that March futures 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.