On The Money Grain Commentary–2-27-14

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Corn Outlook:

Corn futures have been trending upward even though stocks are ample.  The factor underpinning prices the past few weeks is liquidation of short positions by the trend following funds.  Last week, they bought 80 MB reducing their position to 105 MB.  This is a reduction of 765 MB from the peak of 870 MB in early January.  Export inspections last week were below the previous week at 31.1 MB.  While the bulls are quick to point out the increase in sales compared to a year ago, shipments lag the level needed to reach USDA’s projection of 1.6 MB.  Meanwhile, traders are now turning their focus to prospective plantings for 2014.  Recently, the USDA, in the Ag Outlook Conference, projected plantings this spring to fall 3.4 million acres to 92.0 million.  Keep in mind that this is a preliminary estimate based upon statistical models, not a producer survey.

July corn had a setback to 456.5 on Monday followed by a rebound to 468.75 Wednesday.  The market closed at mid range yesterday creating a candlestick topping pattern.  Meanwhile, the trend indicators are weakening suggesting that the move up from the low in January at 421.75 may be ending.  For confirmation of a top, a decline below 456.5 is needed.  In the event, look for a break to 445-439, while a sell-off to a new low cannot be ruled out.  Otherwise, climbing to a target mentioned last week at 473 could still be in the cards.  If it happens, the chance for trading to a new low are diminished.  Historically, corn futures are higher during March 63 percent of the time.  However, be aware that there has been a counter seasonal rally from January into February.  Next week, the odds are 60 percent that July corn will be higher.

Bean Outlook:

     Soybean futures are on steroids and have risen to their highest level in more than five months on expectations that Brazil’s production will fall short of USDA’s current estimate of 90.0 million tons.  This stems from dry weather occurring earlier this month, and wet conditions recently slowing harvest.  Last week, AgRural, a reporting agency in South America, lowered their crop estimate 1.8 million tons to 87.0 million.  However, even with a reduction, production will be at a surplus level.  The factor driving futures higher is the trend following funds building a long position that has reached 840 MB, the largest since September 2012.  After this period, prices tumbled 25 percent over the next seven months.  Export inspection were below last week at 46.7 MB with China taking 25.1 MB or 53 percent of shipments.  The current pace of shipments indicates that the USDA could raise their estimate 60 MB from the current level of 1.510 BB.  Looking at plantings this spring, the Ag Outlook Conference puts preliminary plantings at 79.5 million acres, up 3.0 from last year.

      July soybeans have shot straight up since bottoming in January at 1234 rising to 1416.75 on Thursday from where they broke sharply posting a reversal.  We are in a period for a top to develop, but it may only be for a two-day duration.  Although there is a possibility the market has topped, the wave pattern shows the chance of reaching 1438 or 1447 unless there is a decline below 1350.  Prices may not peak until March 4th or March 7th if this occurs.  During March, soybean futures are up 63 percent of the time.  However, keep in mind that the counter seasonal rally which began in January  has extended into February.  When the final peak is in, do not be surprised if the market becomes unhinged.  Next week, the odds are 60 percent that July soybeans will be higher.

 Wheat Outlook:

Wheat futures have been underpinned the past few weeks from freezing conditions during January and February in the Midwest and Plains with more in the forecast.  However, the appears priced in the market as profit taking developed Wednesday and Thursday.  Exports from the U.S. are holding their own with inspections last week at 15.6 MB.  Shipments are currently on track to reach USDA’s target of 1.175 BB.  The trend following funds continue to lighten their short futures position as they bought 55 MB last week, reducing them to 355 MB.

July wheat rallied to 624.75 on Tuesday followed by a sharp break Wednesday and Thursday.  The trend indicators have turned down and key support at 604 has been broken suggesting that the recovery from last month’s low at 557.25 is probably over.  As it stands now, we are subject to a pullback to 590-583 while one pattern on the weekly chart shows the chance for a sell-off to a new low.  This occurrence would be diminished if 624.75 is exceeded.  During March, wheat futures are down 53 percent of the time.  Next week, the odds are 60 percent the market will be higher.

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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.