On The Money Grain Commentary 3-22-12

Corn Outlook:

     Corn futures backed off this week amid profit taking and concerns that China’s economy is slowing.  Possibly, they will have a rougher landing than many envision.  Rising energy costs also contributed to the decline.  Meanwhile, warmer temperatures and early spring weather is promoting ideas of increased plantings.  We will get a handle on corn acres when the USDA releases its planting intentions on March 30th.  Export inspections were disappointing at 23.1 MB and below the average needed to reach USDA’s projection of 1.7 BB.  In other developments, buying by the trend following funds cooled off last week as their long futures position grew only 5 MB to 895 MB.  Meanwhile, the index funds added 40 MB to their longs increasing them to 1.960 BB.  

     July corn traded to 673.25 on Monday from where there was a downside reversal.  If you will notice on the chart, prices were repelled by the downward sloping trend line and remain within the wedge pattern that has been ongoing since last fall.  Support is expected at 630 although a decline to the lower end of the trading range at 604 cannot be ruled out.  Short-term, the market is due for a rebound to 650-659.  Be advised that earlier this week, the sentiment index showed that 77 percent of traders were bullish corn.  This is approaching an extreme, and in the past when such levels were reached, prices have fallen from 16-33 percent.  Seasonally, corn futures tend to work downward until the end of April.  Next week, the odds are 60 percent that July corn will be lower.  

Bean Outlook:

      Soybean futures came under the gun this week amid concerns that China’s economy is slowing.  If this is the case, imports could weaken.  Meanwhile, the rise in prices during the past few weeks has fueled ideas of increased plantings this spring.  Export inspections were healthy last week at 23.7 MB with China taking 13.4 MB or 56 percent of shipments.  The trend following funds maintain a bullish stance as they increased their long futures position 85 MB to 745 MB.  This is short of the record set in November 2010 at 800 MB.  Keep in mind that the size of their position could eventually be the straw that breaks the camel’s back.  The longs of the index funds were unchanged at 865 MB.       

     July soybeans turned down from 1384.5 on Monday failing to cross the upward sloping channel line shown on the chart.  This was near a target mentioned in previous comments at 1385.  My attention is aroused as this type of action frequently occurs at an important top.  Meanwhile, the wave pattern shows that after a pullback to 1340-1330 occurs, the chance remains for climbing to 1410.  In this event, the rally from the low made in December at 1125.25 could end on March 29th, but probably closer to April 5th or April 13th.  We will have to see how the situation unfolds.  In the meantime, be forewarned that the sentiment index shows that 84 percent of traders are bullish soybeans.  When this level has been reached in the past, prices have fallen between 24-32 percent before a major bottom developed.  Next week, the odds are 60 percent that July futures will be higher.

 Wheat Outlook:

     Improving conditions in the Plains and ideas of increased acres in the March 30th report is pressuring wheat.  In addition, concerns are growing of increased export competition from the Black Sea region and Australia.  Export inspections last week were decent at 20.9 MB and above the average needed to reach USDA’s target of 1.0 BB.  Meanwhile, the trend following funds are turning more bearish as they sold 65 MB of wheat last week increasing their short futures position to 415 MB.  The longs of the index funds fell slightly to 1.060 BB.    

     July wheat turned down from 681 on Monday and fell below the upward sloping trend line shown on the chart resulting in a downside breakout of the wedge pattern that has been unfolding since December.  This projects a decline to a longer-term target mentioned in previous comments at 555.  Seasonally, there is a strong tendency for wheat futures to decline until the end of April.  Cycle analysis shows that a bottom could occur as soon as April 5th, but it will probably be closer to April 18th or April 23rd and could be as late as May 4th.  Short-term, the market is oversold and due for a bounce to 661-666.  Next week, the odds are 60 percent that July wheat will be higher.

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