On The Money Grain Commentary 3-15-12

Corn Outlook:

     Old crop corn is underpinned from tight stocks and optimism that China will boost imports. Meanwhile, forecasts for increased acreage and a bigger supply overhangs new crop.  Informa Economics in their latest estimate projects acres planted this spring at 95.5 million.  If realized, ending stocks next fall could top 1.8 BB.  USDA will release their planting estimate on March 30th.  Currently, the trend following funds are bullish as they added 135 MB to their long corn position increasing it to 890 MB.  The longs of the index funds rose 25 MB to 1.920 BB.  However, bullish sentiment could be throttled if the dollar continues to show improvement. In other developments, export inspections were higher than expected at 36.2 MB and above the average needed to reach USDA’s projection of 1.7 BB.       

     July corn has been trending upward since bottoming last week at 632.5 rising to 669 on Thursday.  The market acts as if it wants to work higher but remains within the wedge-type pattern that has been ongoing since October.  However, one short-term wave pattern shows that a move higher to 677, 685 or 693 cannot be ruled out.  For now, a decline below 651 is needed to break the short-term up trend.  Be advised that the sentiment index shows that 77 percent of traders are bullish corn.  A reading above 80 percent is considered excessive and when it occurs, prices are vulnerable to a sharp sell-off.  Next week, the odds are 60 percent that July futures will be lower.

Bean Outlook:

      Weather in South America is passing as a factor, but the reduction in their crop continues to fuel optimism for increased U.S. exports.  This is evident from the trend following funds adding 175 MB to their long soybean position last week increasing it to 660 MB.  The record is 800 MB set in November 2010.  The index funds are long 865 MB.  Meanwhile, the dollar is showing signs of strength, which could dampen bullish enthusiasm for commodities.  In other developments, export inspections were 26.2 MB with China taking 15.0 MB or 57 percent of shipments.  Informa Economics, in their latest survey, projects soybean acres this spring at 75.1 million, up slightly from last year.       

     The upswing in July soybeans continues with the market not far from a target mentioned in previous comments at 1385.  However, there is a chance of climbing to 1410.  For now, a decline below 1338 is needed to break the up trend.  Cycle analysis shows that a top could occur on March 20th, but the wave pattern points to it being closer to March 29th.  This is the day before the planting intentions report.  Be advised that when prices cross the upper boundary of the channel line shown on the chart, a top could develop at any time.  In the meantime, the sentiment index shows that 75 percent of traders are bullish soybeans, which is on the verge of becoming excessive.  Readings of 80-90 percent can produce a sharp downward reaction.  Next week, the odds are 60 percent that July futures will be higher.

 Wheat Outlook:

     Wheat futures have strengthened recently and are riding on the coattail of corn and soybeans.  World stocks are abundant and the recent strength in the dollar may weigh on exports.  That was not the case last week as inspections were higher than expected at 31.5 MB.  Meanwhile, competition is expected from the Black Sea region and Australia.  Wheat is breaking dormancy in the Plains and Midwest, which means more moisture will be needed for growth potential.   In other developments, the trend following funds trimmed their short position 100 MB last week reducing it to 350 MB.  The longs of the index funds are mostly unchanged at 1.070 BB.

     July wheat bottomed last week at 645 and rebounded to 677.25 on Thursday.  If you will notice on the chart, a head and shoulders type pattern is unfolding.  A decline below 640 constitutes a downside breakout and points to a sell-off to 555 or lower.  Be advised that there is a strong tendency for wheat futures to trend downward through the end of April.  For now, a rally beyond 688.75 and, especially 704, is needed to turn the trend higher.  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.