September has been brutal for the bulls, as corn prices have fallen 16.8 percent from their high. Weakness stems from the increased probability that Greece will default on its debt and disappointment with the Federal Reserve’s latest effort to boost the economy with Operation Twist, a plan to reduce long-term interest rates. In addition, the Fed said there are significant risks to the economic outlook. This is causing traders to reduce their exposure to commodities and paper assets. Last week, the trend following funds shaved 135 MB of their longs in corn reducing them to 1.215 BB. The index funds trimmed 35 MB cutting their longs to 1.790 BB. In other developments, corn harvest has begun and is 10 percent complete compared to the five-year average of 11 percent. Export inspections were a bust at 22.3 MB and below expectations.
December has fallen sharply from the contract high at 779 with only a few brief pauses along the way. Support developed at 676.5 on Monday, but was broken Thursday with prices falling to 647.5. The short-term pattern shows support at 642, but the chances are of trading closer to 630. A bottom should develop by September 27th. Usually, there is a seasonal tendency for corn futures to rebound from the end of September into October. However, fund liquidation may cause a deviation from the norm. Right now, a close past 674 is needed for evidence that a low has occurred. When prices bottom, they will be due for a recovery to 705-715. Longer-term, the market is at risk for a decline to 580 or 535. As it stands now, a multi-year high has probably developed ending a 40-year cycle beginning in 1971. Next week, the odds are 60 percent that December futures will be lower.
Broad based selling in commodities and other financial assets is fueling the sell-off in soybeans. Traders are spooked because the sovereign debt crisis in Europe and the lack of confidence in the Federal Reserve to boost the economy. Last week, the trend following funds liquidated 115 MB of their longs reducing them to MB. The long position of the index funds fell slightly to 825 MB. Meanwhile, the crop continues to deteriorate and is behind in development. Crop conditions fell three points to 56 percent in good-to-excellent condition, while 33 percent of the crop is dropping leaves compared to the average of 47 percent. The late maturity of the crop leaves is vulnerable a frost that could reduce the crop’s potential. Export inspections were 10.0 MB with China taking 7.0 MB.
November soybeans have tanked from the contract high made a few weeks ago at 1465 falling 12.5 percent. Last week’s comments mentioned that major support was expected at the August low of 1282. Prices fell to 1281 on Thursday and may work lower to 1265 or 1250. A bottom is due at the end of the week followed by the period of September 27th-29th. When a low occurs, resistance is expected on a rebound to 1350. Meanwhile, longer-term, the market is at risk for a decline to 1185 or 1120. Next week, the odds are 60 percent that November futures will be lower.
Wheat futures are following the corn and financial markets lower. The rise in the dollar means increased competition with the Black Sea region for business. However, export inspections last week were a marketing year high at 33.3 MB. Spring wheat harvest in the upper Plains is almost done at 93 percent complete. Meanwhile, planting of winter wheat has begun and is 14 percent complete compared to the five-year average of 20 percent. Oklahoma and Texas are running behind their average because of dry conditions. Last week, the trend following funds turned more bearish by adding 105 MB to their short position increasing it to 250 MB. The longs of the index funds fell slightly to 1.010 BB.
December wheat continues its sell-off from last month’s high at 805.5 and is having little success in finding a bottom. Prices fell to 632.25 on Thursday, which exceeded the July low at 639. Additional support is at 620 followed by 597. Cycle analysis points to a bottom developing by September 27th. Usually, a seasonal bounce develops at the end of September into mid October. When a low occurs, resistance is expected on a recovery to 710. Longer-term, prices are at risk for a decline to 535. Next week, the odds are 60 percent that December futures 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.