Corn futures were hammered this week for a number of reasons. Yields in northern Iowa and Minnesota are running better than expected with harvest progressing briskly at 26 percent complete. More importantly though, anti American sentiment in the Middle East is rising and a dispute between China and Japan over possession of the Senkaku islands in the East China Sea has escalated tensions. Apprehension rose that their differences could destabilize the region. The islands are only a stone’s throw from Taiwan. For these reasons, traders opted to reduce their exposure to commodities. Last week, the trend following funds trimmed 160 MB from their long futures position reducing it to 1.2 BB. The longs of the index funds rose slightly to 1.815 BB. In other developments, export inspections exceeded expectations at 27.8 MB.
December corn fell to 739 on Tuesday followed by a rebound to 759.25 Wednesday. We tested 739 again Thursday creating a double bottom. To mark an end to the decline from 849, we must climb beyond Wednesday’s high. Otherwise, a move lower to 726 or 718 cannot be ruled out before a recovery gets underway. Be aware that corn is at its most oversold level since June. As mentioned in previous comments, one wave pattern still shows the potential for rising to a new high once the pullback from 849 is over. The prospect of this happening will be addressed when the dust from the sell-off settles. Next week, the odds are 60 percent that December corn will be lower.
Soybeans were whacked this week for the reasons mentioned in corn regarding anti American sentiment in the Middle East and the China-Japan dispute. In addition, harvest is progressing at 10 percent complete with producers opting to sell off the combine rather than store because of the premium. Meanwhile, weather has improved for planting in South America with the potential for a huge crop. However, a large crop is needed to offset tight stocks in the U.S. Export inspections were well below estimates at 9.9 MB with China taking 4.3 MB. In other developments, the trend following funds shaved 65 MB from their long position reducing it to 975 MB. The longs of the index funds fell 15 MB to 570 MB.
November soybeans fell to 1630.5 on Tuesday followed by a rebound to 1686 Thursday. From here, the market turned down and slid to 1616. A move lower to 1595 or 1580 is likely before a bottom develops. This could occur by early next week. Meanwhile, the decline from 1789 may not end until mid October with the potential for a sell-off to 1555, 1535 or 1515. Be advised that it took forty days to complete the decline from 1397 to 1244.75. Seasonally, soybean futures tend to be on the downswing until the first week of October. Next week, the odds are 60 percent that November soybeans will be lower.
Wheat slumped this week but its losses were not as severe as corn and soybeans. Export inspections were better than expected at 29.3 MB and above the average needed to reach USDA’s projection of 1.2 BB. Winter wheat planting is 11 percent complete, slightly behind the average of 14 percent. The trend following funds sold 10 MB last week reducing the long position to 45 MB. The longs of the index funds fell slightly to 940 MB.
December wheat fell to 860.75 on Tuesday from where it recovered. Right now, it is not clear as to whether the correction from 953.25 is over, or there will be another test of support at 857.25. However, once the pullback is complete, the wave pattern points to a rally to 973, which should end the advance from 629.5. From a seasonal perspective, wheat futures tend to rise from the end of September until mid October. Next week, the odds are 60 percent that December wheat will be higher.
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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.