On The Money Grain Commentary 2-9-12

Corn Outlook:

     The upside momentum has waned in corn futures as the market has apparently reached a level of equilibrium that factors in production losses in South America.  Currently, Argentina’s production is forecast at 22.0 million tons, down 4.0 million from January.  Brazil’s crop is pegged at 61.0 million, unchanged from last month.  Meanwhile, domestic ending stocks for 2011-12 are projected at 801 MB, down 45 MB from January.  The report shows tighter stocks, but is in line with expectations.  At this time, attention will now focus on planted acreage in 2012, which many believe could be the highest since 1944 and top 94.0 million.  If it happens, we could be staring at ending stocks of 1.7 BB next year.  In other developments, the index funds have turned bullish as they increased their long futures position 160 MB to 630 MB.       

     July corn rebounded to 659.75 on Thursday following the report.  From here, prices backed off and closed lower creating a candlestick top.  Short-term, we are due for a setback to 631, 625 or 618.  If you will notice on the chart, prices have traded in a range since last October.  This trend is unlikely to change unless there is fresh news or input causing a breakout.  Meanwhile, the longer-term trend is down unless there is a rally past 679.  From a seasonal perspective, corn futures tend to work lower followed by a recovery into March.  However, we have not followed the norm this year.  Next week, the odds are 70 percent that July corn will be higher.

Bean Outlook:

      Weather has improved for the South American crop, but traders are betting that lower output caused by the drought in December will increase importer interest for U.S. soybeans.  In Argentina, February production was cut 2.5 million tons to 48.0 million, while Brazil’s crop fell 2.0 million to 72.0 million tons.  Meanwhile, domestic ending stocks were unchanged from last month at 275 MB.  The report shows tighter stocks but is in line with estimates. Looking ahead, traders are of the opinion that soybean acres will be down in 2012 causing additional tightening of stocks.  In other developments, the long position of the index funds fell 30 MB to 95 MB, while the longs of the index funds are unchanged at 850 MB. 

      July soybeans traded to 1265.75 following the report on Thursday, but backed off  and closed lower on creating a candlestick top.  If support at 1241.25 fails, look for a pullback to 1233-1226.  Later, there is a chance of climbing to 1295 with a top on February 22nd or February 27th.  Right now, this is dependent upon how the pattern from the low at 1204 unfolds.  Longer term, the trend is down with prices at risk of breaking the low made in December at 1125.5.  Although the seasonal pattern is lower until the end of February, we are not following the norm.  Next week, the odds are 60 percent that July futures will be higher.

 Wheat Outlook:

     Freezing conditions in Eastern Europe and the Black Sea region along with short covering by the funds has been the supportive influence in wheat.  This was evident last week when the trend following funds unloaded 100 MB of their short position reducing it to 375 MB.  In the February Supply-Demand Report, domestic ending stocks of wheat fell 25 MB to 845 MB.  Meanwhile, production in Eastern Europe and the Black Sea region was largely unchanged allowing an increase of 3.0 million tons in world stocks.  In other developments moisture is improving in the Plains, although there are areas that remain dry.      

     July wheat peaked on February 1st at 704 and has been trending lower since.  Support is expected 657-647.  Seasonally, wheat futures tend to move downward until the end of April.  So far, wheat is the only grain that has been following the norm.  Right now, a decline below 628.5 is needed to turn the intermediate-term trend from sideways to lower.  If it happens, lookout out because we are probably headed below 613.  In the meantime, a rally slightly past cannot be ruled out.  Next week, the odds are even as to whether July wheat will be higher or lower.

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