On The Money Grain Commentary 3-29-12

Corn Outlook:

     Corn futures have been under siege ahead of the inventory and planting intentions report late this week.  Traders expect acreage to be 94.7 million, up from 91.9 million in 2011.  If realized, it will be the largest corn crop planted since 1944.  However, the chances are that with the early spring, acres will exceed USDA’s estimate as planting is already in full swing in many areas.  Production this fall could top 14.3 BB with ending stocks of 1.8 BB.  In other developments, export inspections were disappointing at 22.2 MB and below the average needed to reach USDA’s projection of 1.7 BB.  The pace of shipments has fallen the past couple of weeks.  Last week, the long position of the trend following funds rose 90 MB to 985 MB.  The longs of the index funds stand at 1.980 BB.    

     It has been a tough week for July corn since peaking on Monday at 652.75.  Prices broke support at 630 and have fallen below the up trend line shown on the chart.  In addition, a downside breakout of the wedge pattern that has been unfolding since October has occurred.  We have exceeded the January bottom at 604 and could challenge the low made in December at 594.  Short-term, the market is oversold and due for a rebound to 618-622.  Seasonally, corn futures usually trend downward in April and close lower 84 percent of the time.  Cycle analysis shows that unless there is a bullish surprise in USDA’s report tomorrow, an important bottom may not occur until April 5th, April 20th, and it could be as late at May 4th.  Next week, the odds are 60 percent that July corn will be higher.

Bean Outlook:

       Soybean futures remain stout amid expectations for a smaller South American crop and supportive demand outlook from China.  Late this week, traders expect the USDA to increase soybean acres to 75.3 million from 74.9 million a year ago.  However, many think that with the early start in corn planting, a shortfall in bean acres could occur.  One thing is certain: the market must receive a continuous dose of bullish news as the long position of the trend following funds has risen to a record 855 MB.  Meanwhile, the sentiment index shows that 84 percent of traders are bullish.  In the past, when a reading this high has been reached, the bulls’ canoe has been known to flip!  In other developments, export inspections were 24.9 MB with China taking 15.8 MB or 63 percent of shipments.  During the past three weeks, the pace of shipments to them has slipped.      

     July soybeans have backed off since peaking on Monday, March 26th at 1393.5.  This was within three days of a cycle high due on March 29th.  So far, the pullback resembles a correction.  This gives the market the benefit of the doubt for climbing to the long-term target at 1410 unless there is a close below support at 1345.75.  Be alert for signs of a top on April 5th, April 13th, or upon crossing resistance of the upward sloping channel line.  When a peak occurs, it could terminate the advance from the low made in December at 1125.25.  We will have to see how events unfold.  In the meantime, be aware that soybean futures close lower in April 52 percent of the time.  Next week, the odds are even as to whether July soybeans will be higher or lower.

 Wheat Outlook:

      Wheat succumbed to selling this week as solid supportive fundamental news is lacking.  The crop is emerging from dormancy and growing conditions are improving.  Export inspections were lethargic at 15.3 MB and below the average needed to reach USDA’s projection of 1.0 BB.  In other developments, traders expect wheat plantings to climb to 57.4 million acres, up from 54.4 million a year ago.  The trend following funds covered 10 MB of their short position last week reducing it to 405 MB.  However, the index funds added 15 MB to their longs increasing them to 1.075 BB.   

     July wheat has slid sharply since topping on Monday at 680.25.  If you will notice on the chart, the market has set lower highs since peaking at 704 and broken support at 640.  In addition, there has been a downside breakout of the wedge pattern unfolding since February.  This projects a sell-off to the longer-term target at 555.  Short-term, the market is oversold and due for a bounce to 640-645.  From a seasonal perspective, wheat futures trend downward until the end of April and close lower 52 percent of the time.  Cycle analysis points to a bottom occurring on April 18th or April 23rd, and it could be as late as May 4th.  Next week, the odds are 70 percent that July wheat will be lower.

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