USDA confirmed a smaller corn crop when they lowered their yield estimate to 148.1 bpa from 153.0 bpa in August. This is higher than Ag Watch’s forecast of 144.8 bpa. Ending stocks for the 2011-12 crop are projected at 672 MB. In other developments, the trend following funds have been on the sidelines the past couple of weeks maintaining a long position of 1.350 BB. Look for the funds to stand at bay or lighten their position as the debt crisis in Europe worsens. Meanwhile, the grains and other commodities slid sharply on Thursday from reports of UBS Bank losing $2.0 billion in unauthorized trading, possibly in exchange traded funds. Be advised that the grains can be traded using ETF’s This is a huge blow for the trading desks of large banks and may cause additional deleveraging of commodities and other risk oriented investments.
December corn has been on a slippery slope since topping last month at 779 falling 10.1 percent in value. The sell-off below support at 706, and the extent of the decline diminishes the chance for trading to a new high. As it stands now, a long-term top, possibly a multi-year high has developed. One long-term pattern shows that a 40-year cycle that began in 1971 could be over. Cycle analysis points to a low occurring at the end of this week. Prices are oversold short-term, but the pressure is on the bulls. Support is expected at 690 followed by 677. Resistance will likely be met on a rebound to 730-740. Next week, the odds are 80 percent that December futures will be lower.
Soybean traders were slapped with a bearish surprise when the USDA raised their yield estimate to 41.8 bpa from 41.4 bpa in August. This resulted in 2011-12 ending stocks rising to 165 MB, or a stocks-to-usage ratio of 5.2 percent. While stocks remain tight, the market has been given some breathing room, especially with the 2.6 percent increase in world stocks. In other news, export inspections improved from the previous week at 11.7 MB. Recently, the long position of the trend following funds fell 30 MB to 715 MB. However, this is still a lofty level and much of their position is underwater. This will act as a noose around the market’s neck. The longs of the index funds grew slightly to 835 MB.
November soybeans have fallen 5.0 percent since peaking last month 1465. Last week’s comments mentioned that either an intermediate-term or a major top had developed. So far, the nature of the pullback leans to a major top having occurred. Support is at 1350 followed by 1328. Meanwhile, major support is at the August low of 1282. Cycle analysis points to a short-term low developing during the period of September 19th-22nd. Resistance is expected on a rebound to 1410. Next week, the odds are 70 percent that November futures will be lower.
USDA stunned traders when they whacked wheat usage 3.3 percent causing ending stocks for 2011-12 to jump to 761 MB from 672 MB last month. This lessens production concerns in the southern and upper Plains. Meanwhile, spring wheat harvest is winding down at 83 percent complete, while planting in the Plains has begun and is 6 percent done. Export inspections were disappointing at 15.7 percent reflecting the impact of the rise in the dollar and competition from the Black Sea region. In other developments, the short position of the trend following funds fell slightly to 145 MB, while the longs of the index funds were down 20 MB to 1.015 BB.
December wheat has been in a steady decline since it peaked last month at 805.5. Prices fell to 686 on Thursday, which is likely a short-term low. Cycle analysis pointed to a bottom occurring on September 19th. Short-term, the market is due for a recovery to 732 or 745. Seasonally, there is generally a rebound until mid October. Meanwhile, the chances of exceeding 805.5 are slim. Next week, the odds are 60 percent that December wheat will be lower.
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