On The Money Grain Commentary 2-23-12

Corn Outlook:

     Production cuts to South America’s corn crop appear to be factored into prices with traders now focusing on an increase in planted acres this spring.  At the outlook conference on Thursday, the USDA reaffirmed its November baseline projection for corn planting in 2012 at 94 million acres.  However, prospective plantings based upon a producer survey will not be released until March 31st.  Export inspections were 34.7 MB and below the average needed to reach USDA’s target of 1.7 BB.  Currently, the pace of shipments are running 75 MB short of reaching their goal.  The trend following funds are less bullish as they cut their long corn futures position 30 MB to 685 MB.  Meanwhile, the longs of the index funds are down slightly to 1.745 BB.       

     July corn peaked last week at 653 followed by a decline to 632.75 on Tuesday, the day after President’s Day.  Prices have drifted since searching for a direction.  Right now, the market is in a catch-22 situation showing two potential patterns.  The first pattern leans to a decline below support at 629.75 to the January low at 604.  This scenario shows the market working downward until February 28th-March 1st.  Meanwhile, the second points to the chance of climbing beyond resistance at 659.75.  The technical indicators are at neutral levels and not offering a hint as to which pattern will evolve.  However, in order to turn the longer-term trend up breaking the wedge formation that has been unfolding since October, a close beyond 679 is needed.  Otherwise, the market is at risk of trading lower with a downside breakout of the trading range possible in the weeks ahead.  During March, corn futures are higher 63 percent of the time.  Next week, the odds are 60 percent that July corn will be up.

Bean Outlook:

      Soybean futures are underpinned from uncertainty surrounding production in South America, recent purchases by China, and expectations that acres will be lost to corn this spring.  On Thursday, traders got a preview of 2012 plantings with USDA’s baseline projection of 75 million acres.  However, planting intentions based upon a producer survey will not be released until the end of March.   In other developments, export inspections were 38.4 MB with cumulative shipments running 25 percent behind last year.  China took 26.4 MB or 68 percent of shipments.  The trend following funds are more bullish as their long futures position jumped 90 MB to 310 MB.  Meanwhile, the longs of the index funds are up slightly to 845 MB. 

      July soybeans continue to climb with only an occasional setback along the way.  We are closing in on a target mentioned in previous comments at 1295, but the wave pattern is leaning to working upward to 1310 or possibly 1340.  Right now, the cycles point to a top during the period of February 28th-March 1st.  Be advised that the momentum and trend indicators are at a point suggesting that we should be on the lookout for a peak.  However, for evidence that one has developed, a decline below 1263 is needed.  During March, soybean futures are up 63 percent of the time.  Next week, the odds are 60 percent that March soybeans will be higher.    

  Wheat Outlook:

      Wheat is encountering resistance from abundant global supplies while concerns regarding the crops in Russia and Ukraine are starting to fade.  Meanwhile, a record crop is expected in Australia.  USDA’s projection for wheat acres in the outlook conference is 58 million.  Export inspections were 22.1 MB and above the average needed to reach USDA’s projection of 975 MB.  However, cumulative shipments are running 15 percent behind a year ago.  In other developments, the trend following funds are becoming more bearish as their short futures position rose 60 MB to 440 MB.  This is short of the record set in January at 475 MB.  The longs of the index funds stand at 1.055 BB.    

     July wheat fell to 640 on Tuesday, which appears to have ended the decline from 704.  If so, a recovery to 673-680 can be expected with a top likely on March 1st.  Seasonally, wheat futures tend to bounce into early March.  However, longer-term, the trend is down with the potential for a sell-off below the contract low at 613 to 555 or possibly 465.  In this event, look for a bottom occurring on April 18th, although it could be later.  During March, wheat futures are lower 52 percent of the time.  Next week, the odds are 60 percent that the market will be higher. 

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