On The Money Grain Commentary 3-1-12

Corn Outlook:

     There are two tales in corn each having opposing fundamentals.  Tight stocks and a strong cash market are supportive of old crop.  However, new crop is a different story, as expectations are that 94 million acres will be planted this spring.  If a trend line yield is realized, we could be staring at a 14 BB crop with ending stocks of 1.6-1.7 BB.  While attention has mostly been centered on old crop, the focus will shift to new crop in the weeks ahead.  In the meantime, strength in soybeans underpins both crops.  In other developments, export inspections were 27.0 MB and below the average needed to reach USDA’s projection of 1.7 BB.  Meanwhile, the trend following funds are less bullish as they trimmed 100 MB from their long futures position reducing it to 585 MB.  However, the index funds increased their longs 50 MB to 1.790 BB.    

     July corn rose to 663.25 on Wednesday exceeding resistance at 653.  However, the market remains within the confines of the wedge-type formation that has been ongoing since last October.  A breakout is forthcoming but the direction is unclear.  Prices are overbought, but if 663.25 is exceeded, look for a move upward to test the January high at 679.  Seasonally, corn futures tend to peak early to mid March.  Right now, a decline below 639 is needed to turn the short-term trend down.  In the event, it favors a sell-off to the lower end of the trading range.  Meanwhile, a close past 679 signals an upside breakout of the wedge formation.  Next week, the odds are even as to whether July corn will be higher or lower. 

Bean Outlook:

      Soybeans are grabbing the spotlight in the grains.  Each day, it seems that a trade source lowers their production estimate in South America.  Traders are extremely bullish, but is it possible they are overlooking the benefit wetter conditions have had on the late-planted crop?  We will have to wait until USDA’s production estimate in March for an answer.  At any rate, lower numbers are being factored in.  In the meantime, the trend following funds are more bullish as they added 80 MB to their long futures position last week increasing it to 390 MB.  The longs of the index funds were down slightly to 835 MB.  In other developments, export inspections were 36.9 MB and above the average needed to reach USDA’s target of 1.275 BB.  China took 24.6 MB or 66 percent of the total.

      July soybeans traded to 1331.75 on Wednesday and have closed higher for nine consecutive sessions.  Support is expected on a pullback to 1310-1300.  Meanwhile, the trend is up with a target mentioned in previous comments at 1340 within reach.  Although the market is overbought and the sentiment index shows that 69 percent of traders are bullish, the wave pattern indicates the potential for rising to 1385 before an important top develops.  While prices have deviated from the seasonal norm since December, they have a tendency to peak by mid March.  We will have to see how the situation unfolds.  Next week, the odds are 80 percent that July futures will be higher.

 Wheat Outlook:

     Wheat futures are underpinned from strength in soybeans and, to some extent, old crop corn.  In addition, there is speculation that there could be a reduction in spring wheat acres this season in favor of more corn.  If it occurs, there will be no shortage of wheat as world stocks are abundant.  In other developments, the trend following funds are sporting a record short futures position of 485 MB which may spark short covering if soybeans continue to work higher.  The longs of the index funds are down slightly to 1.045 BB.  Export inspections were dismal at 9.3 MB, a marketing year low.  Right now, shipments are running 30 MB below the pace needed to reach USDA’s projection of 975 MB.      

     July wheat rallied to 685 on Wednesday and backed off.  If it is exceeded, a rally to test the February high at 704 cannot be ruled out.  However, keep in mind that wheat futures tend to peak in early March followed by a decline through the end of April.  Otherwise, a decline below 660 turns the short-term trend down.  Longer-term, the market is trading in a wedge-type pattern which favors a downside breakout.  In this event, it projects a sell-off to 555 or lower.  Right now, a close beyond 704 is need to turn the trend higher.  Next week, the odds are even as to whether July futures will be higher or lower.

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