Confusion reigned in the commodity and financial markets this week because of the earthquake in Japan and escalation of the unrest in Libya. Japan’s transportation infrastructure has been severely damaged which will disrupt grain shipments and may cause some cancellations. The Bank of Japan has pumped $180 billion into their economy and doubled the size of its asset-buying program. Meanwhile, investors are emotionally spent because of the increase in market volatility. In other developments, export inspections were 35.2 MB and below the average needed to reach USDA’s projection of 1.950 BB. Last week, the trend following funds shed 130 MB from their long corn position that currently stands at 1.550 BB. Meanwhile, the index funds added 20 MB to their longs increasing them to 1.970 BB.
July corn fell to 615.25 on Wednesday for a decline of 17.4 percent from the contract high at 745. This is the largest percentage sell-off since the advance began last June. On Thursday, prices traded the 30-cent limit higher to 653.75 as fears surrounding Japan subsided. Currently, the wave pattern on the weekly chart shows a major top may have occurred in corn. In addition, a reversal pattern has developed on the CRB Index indicating a potential top in commodities. Short-term, the market is oversold and due for a rebound to 665 and probably closer to 680 or 695. Cycle analysis points to the recovery ending as soon as March 23rd, although it may be closer to March 28th and possibly as late at April 4th. If a major top has developed, prices could trade sideways to lower until May 20th with the chance for a decline to 560. Next week, the odds are 60 percent that July futures will be lower.
Uncertainty of the long-term impact to the global economy caused by the earthquake in Japan has weighed on soybean futures. Traders are also concerned about the unrest in the Middle East and the prospects for larger production in South America. Because of the increased volatility, investors have suffered staggering losses in their positions. In other developments, export inspections were less than expected at 32.9 MB with China taking 21.5 MB or 65 percent of the shipments. Last week, the trend following funds increased their long position 65 MB to 585 MB, while the longs of the index funds stood unchanged at 805 MB.
July soybeans fell to 1278 on Tuesday for a decline of 10.7 percent from the high made earlier this month at 1431.5 and a sell-off of 13.3 percent from the contract high at 1474.5. Short-term, the market is oversold and due for a rebound to 1375 or possibly 1400. Cycle analysis points to the recovery ending on March 25th or April 1st. The wave pattern on the weekly chart shows that a major top, possibly a multi-month or a multi-year high, may have occurred. If this is the case, prices could trade sideways to lower until May 16th with the chance of falling to 1200 or 1130. There is a pattern on the daily chart that still leans to a new high, but it is like putting a square peg in a round hole. Next week, the odds are 60 percent that July futures will be higher.
Wheat futures have also been a victim of the turmoil in Japan and unrest in the Middle East. It has many traders worried about the future demand potential. Meanwhile, it will be a few weeks before this is known. Last week, export inspections were better than expected at 25.7 MB but below the average needed to reach USDA’s projection of 1.275 BB. The funds were idle last week as the short position of the trend following funds was unchanged at 50 MB, while the index funds are long 1.070 BB.
July wheat fell to 691 on Wednesday that was followed by a sharp rebound on Thursday. The market is oversold and long overdue for a recovery. Look for resistance to be encountered at 755 followed by 790 and 820. From a seasonal perspective, wheat futures generally trade lower until the end of April. Cycle analysis shows a bottom developing on April 21st, May 5th or May 12th. Longer term, there is a chance of trading lower to 640. Next week, the odds are even as to whether July futures 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.