On The Money Grain Commentary 3-8-12

Corn Outlook:

     Corn futures face crosscurrents from tight old crop stocks, uncertainty surrounding the Greek bond swap, slower growth in China, and expectations for increased U.S. plantings.  Since January, the bulls have held the upper hand building a long position.  Last week, the trend following funds bought 170 MB of corn increasing their longs to 755 MB, while the long position of the index funds grew 105 MB to 1.895 MB.  However, the market faced a strong headwind this week as much of the bullish news has been discounted and fresh input is needed.  In the weeks ahead, the focus will center on planting progress, weather and potential increase in supply.  In other developments, export inspections were 30.9 MB and below the average needed to reach USDA’s projection of 1.7 BB.  Tomorrow, traders will zero in on USDA’s export estimate and production forecast for South America’s crop.

     July corn peaked on Monday at 665.75 and has since fallen.  Support is likely at the low made a few weeks ago at 629.75, while resistance is expected at 647-650.  Since October, a wedge-type pattern has been unfolding.  A breakout is forthcoming but the direction is unclear.  From a seasonal perspective, corn futures tend to peak by mid March and work lower through the end of April, which favors a downside breakout.  For a downside breakout to occur, a decline below 604 is needed.  Meanwhile, a rally beyond 665.75, and especially 679, ends the succession of lower highs that have been unfolding from the contract high at 795.  In the meantime, the market’s persistent sideward pattern will continue to perplex traders and test their patience.  Next week, the odds are even as to whether July futures will be higher or lower.     

Bean Outlook:

      Traders are bullish soybeans on China’s interest and expectations that a smaller crop in South America will increase U.S. exports.  We will get a glimpse of this tomorrow in the supply-demand report.  In the meantime, the long position of the trend following funds leaped 95 MB last week to 485 MB, while the longs of the index funds grew 25 MB to 860 MB.  Although we are not near the record of 800 MB set in 2010, my concern is that China recently cut its growth rate to 7.5 percent, the lowest since 2004.  It will slow further unless the economies of the U.S. and Europe strengthen.  This could dampen bullish enthusiasm.  In other developments, export inspections were 32.5 MB with China taking 19.1 MB or 58 percent of shipments. 

      July soybeans traded to 1345 on Wednesday setting a short-term top.  Support is expected at 1325-1315.  Currently, the sentiment index shows that 74 percent of traders are bullish soybeans, which is a high reading.  However, it usually does not become a problem until it reaches the 80-90 percent level.  In the meantime, the wave pattern reveals the market being on track for a rally to 1385 while a more bullish outlook points to 1410.  Cycle analysis leans to a top occurring as soon as March 14th, but it will probably be closer to March 20th and could be as late as March 29th.  Next week, the odds are 70 percent that July futures will be higher.

 Wheat Outlook:

     There is not much fresh news in wheat as it is mostly following corn and, occasionally, soybeans.  World stocks are abundant and conditions are improving in the southern Plains.  However, warmer temperatures have created concerns of the crop breaking dormancy leaving it vulnerable to a late freeze.  Export inspections were 16.9 MB and below the average needed to reach USDA’s target of 975 MB.  Last week, the trend following funds bought 35 MB of wheat reducing their short position to 450 MB.  Meanwhile, the index funds increased their longs 20 MB to 1.065 BB.

     July wheat peaked at 688.75 on Monday and since fallen within striking distance of the low made in February at 640.  If you will notice on the chart, a head and shoulders pattern appears to be unfolding.  A decline below 640 constitutes a downside breakout and projects a sell-off to 555 or lower.  Seasonally, wheat futures tend to work downward until the end of April, which favors a downside breakout.  In order to turn the trend up, a rally past 704 is needed.  However, this appears unlikely.  Next week, the odds are even as to whether July wheat will be higher or lower. 

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