On The Money Grain Commentary 2-2-12

Corn Outlook:

     A wetter pattern is forecast in Argentina this week, which will help late-planted corn.  However, weather is becoming less of a factor as harvest has begun in northern Brazil.  In the meantime, domestic basis levels are strong and providing underlying support.  Additional support is sponsored from the rally in wheat.  EU leaders met in Brussels this week and agree to tighter budget controls.  However, getting a unified plan to work among all members will be a different story.  Export inspections were 22.6 MB, the smallest level seen since early November.  Last week, the trend following funds sold 85 MB of corn reducing their long position to 470 MB.  The longs of the index funds grew 20 MB to 1.740 BB.  During the next few weeks, the focus in the grains will center on the acreage debate between corn and soybeans.  Right now, corn has the edge.    

     March corn traded to 650 on Wednesday where a candlestick top occurred.  Right now, the market is at an important juncture.  The momentum indicators have not quite reached an overbought status and the short-term wave pattern shows the potential for rising to 657.  However, a decline below 627 means that all bets are off and points to a sell-off to last month’s low at 592.5, and possibly a test of the lower end of the trading range that began in October.  If you will notice on the chart, the market has been in a broad sideward pattern since last fall.  For now, a rally past 664.25 is needed to turn the intermediate and longer-term trend higher.  Next week the odds are 60 percent that March futures will be higher. 

Bean Outlook:

       Rain in Argentina this week will help the soybean crop with showers forecast in southern Brazil by the weekend.  However, weather is becoming less of a factor as harvest is soon approaching.  Export inspections were better than expected at 41.5 MB, but cumulative shipments are running 27 percent below a year ago.  China took 26.8 MB or 64 percent of shipments.  Last week, the trend following funds bought 60 MB of soybeans increasing their long futures position to 125 MB.  Meanwhile, the longs of the index funds grew 15 MB to 850 MB.  For the moment, soybeans are riding on the coattails of corn and wheat.   

     Like corn, March soybeans are at an important juncture.  If you will notice on the chart, since peaking in January at 1244.75, a coiling pattern has been unfolding consisting of lower highs and higher lows.  This suggests that a breakout is forthcoming with the question being which direction.  Seasonally, soybean futures tend to work lower until the end of February, which favors a downside breakout.  However, in order for it to be confirmed, a decline below the low made earlier this week at 1184.25 is needed.  In this event, the bears gain the edge in which there could be a sell-off to 1150 or the low made in December at 1104.5.  Otherwise, a close beyond 1231 puts the ball in the bull’s court and projects a counter seasonal rally to 1290.  Next week, the odds are 60 percent that March futures will be higher.

 Wheat Outlook:

     The wheat market has sprung to life as large traders became too bearish.  This is evident from the short position of the trend following funds rising to a record 475 MB.  In addition, concerns of winterkill in the Ukraine are providing support and have triggered short covering.  Although the fundamentals for wheat are not bullish, do not underestimate the upside potential that could occur if the funds bail on their position.  In the meantime, world stocks are ample and Australia appears headed for a record crop.  Precipitation is forecast in the Plains this weekend, which should give conditions a boost.  Export inspections were 18.6 MB with cumulative shipments running 14 percent behind last year.      

     March wheat traded to 683.75 on Wednesday where either a short or an intermediate-term top developed.  Right now, it is too early to tell which it is.  Support is at the low made Thursday at 657 followed by 650.  However, a break below this level suggests that that we are headed to 635 and possibly closer to 620-615.  Keep in mind that February is historically not a good month for wheat futures as they trade lower 79 percent of the time.  Meanwhile, a rally beyond 683.75 opens the door for a counter seasonal move upward to 720.  Next week, the odds are 80 percent that March futures will be lower.

Want the kind of intel that helps serious producers succeed? Sign up for a FREE! trial subscription to our daily newsletters.

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.