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Last week, traders were reminded that corn inventory will be tight until this fall as the USDA left 2012-13 ending stocks unchanged at 639 MB. They lowered their export projection by 75 MB but increased feed consumption by 100 MB citing growth in poultry numbers. However, I believe that they are a bit optimistic in the assessment of usage considering the cattle herd is its smallest since the 1950’s, and the pig crop is on par with a year ago. In addition, unless exports improve significantly, the USDA can lower them another 75 MB. Last week, inspections were 14.4 MB and below the average needed to reach the current projection of 825 MB. The trend following funds have become more positive as they reversed their short futures position of 25 MB and are now long 85 MB. The longs of the index funds fell slightly to 1.905 BB.
July corn traded to 699.5 on Thursday and is recovering from the low made earlier this month at 664.5. The market has become overbought and is due for a setback. Seasonally, there is a strong tendency for corn futures to work lower from mid March until the end of April. Right now, a decline below 683 is needed for evidence that prices are following the norm. Otherwise, the short-term trend is up and we could climb to 707 or possibly 716. Once the recovery peaks, the market will be at risk for a decline to 640-630 or 615. Next week, the odds are 60 percent that July corn will be lower.
A large soybean crop looms in South America but loading delays and labor unrest in Brazil have been supportive. This may prop up U.S. exports a while longer. However, you could not tell that from last week, as inspections were only 17.1 MB, the smallest since the third week of September. China’s appetite soured as they took only 2.4 MB or 14 percent of shipments. Although this is a discouraging number and indicates that exports are waning, they are still on track to exceed USDA’s projection of 1.345 BB. In other developments, the long futures position of the trend following funds fell 5 MB last week to 520 MB, while the longs of the index funds were down 30 MB to 555 MB.
July soybeans peaked at 1463.5 last and have since backed off. If you will notice on the chart, a rising wedge pattern is forming from the November low at 1331.75. These tend to be bearish patterns with the breakout generally in the direction of the existing trend, which, in this case, is down. A rally beyond 1463.5 is needed to turn the trend from sideways to up. Otherwise, there is a strong seasonal tendency for soybean futures to trade lower until mid to late April. If we follow the norm and prices break support at 1405.5, a decline to 1385 or 1355 is expected. Longer-term, a sell-off below 1331.73 projects a move lower to 1238 or 1210. Next week, the odds are 60 percent that July soybeans will be higher.
Wheat is being supported from spreading against corn and soybeans. Meanwhile, expectations of a larger crop globally and in the U.S. will offer resistance. In addition, recent snowfall in the southern Plains is causing an improvement in crop conditions. Export inspections last week were better than expected at 27.8 MB and above the average needed to reach USDA’s projection of 1.025 BB. The trend following funds have been inactive recently and are sporting a short futures position of 355 MB. This could spark a short covering rally. Meanwhile, the longs of the index funds fell slightly to 725 MB.
July wheat bottomed last week at 686 and has since risen. The trend indicators have turned up suggesting that the sell-off from the contract high at 900 has probably ended. However, this is counter to the seasonal trend which is lower through the end of April. Meanwhile, provided that 686 holds, a recovery to 740 or 770 could unfold. Next week, the odds are even as to whether July wheat will be higher or lower.
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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.