Corn futures have undergone a brutal pounding during September. The factors causing the sell-off are a weakening global economy and the sovereign debt crisis in Europe. The chaos in the financial markets caused the trend following funds to unload 200 MB of their long corn position last week reducing it to 1.015 BB. Meanwhile, the longs of the index funds were flat at 1.795 BB. Liquidation by the funds this month exemplifies what happens when large speculators become the driving force. In other developments, corn harvest is 15 percent complete, which is in line with the five-year average of 16 percent. Export inspections were better than expected at 34.2 MB and above the average to reach USDA’s projection of 1.650 BB.
December corn fell to 630 on Monday, which appeared to be a low ending the decline from the contract high at 779. The market rebounded to 666.25 on Tuesday but could not hold onto its gains. Prices have since backed off falling to 623 on Thursday. We are extremely oversold, but the short-term wave pattern shows that unless there is a close past 650, prices may work lower to 615 or 607 before the sell-off ends. This could occur after the stocks report although the cycles lean to a low developing on October 3rd or October 6th. Currently, bullish sentiment is at its lowest level since 2010. Once a bottom unfolds, a recovery to 675 or 695 is due with 715 being the extreme. Longer-term, the market is at risk for a decline to 580 or 535. During October, corn futures are higher 50 percent of the time. Next week, the odds are 70 percent that December corn will be lower.
Broad based selling of commodities and equities has taken a toll on soybeans this month along with weaker demand. Last week, the trend following funds dumped 170 MB of their long position reducing it to 430 MB. The index funds shed 30 MB cutting their longs to 795 MB. Additional liquidation is likely before the selling runs its course. In other developments, harvest has begun and is five percent complete compared to the five-year average of 11 percent. Exports are a concern with inspections at 7.4 MB and below the average needed to reach USDA’s projection of 1.8 BB. China, our biggest customer, took 2.1 MB or 29 percent of the shipments.
November soybeans fell to 1226 on Monday and made a reversal higher. However, it was a false bottom as prices stalled at 1278.75 the following session and fell to 1209.25 on Thursday. Unless there is a close past 1260, the short-term wave pattern leans to a move lower to 1193 before the sell-off from the contract high at 1465 ends. This could occur after the stocks report, although it may be on October 3rd or October 6th. Currently, bullish sentiment is at its lowest level since 2010. Once prices bottom, a recovery to 1295 or 1325 is likely with 1360 being the extreme. Longer-term, the potential exists for a sell-off to 1120. During October, soybeans futures are down 58 percent of the time. Next week, the odds are 60 percent that November soybeans will be lower.
Wheat has undergone a harsh sell-off this month along with corn and soybeans. Meanwhile, dryness in key growing areas of the U.S., Ukraine, Argentina and Australia is offering support. Currently, the funds are extremely short. Last week, the trend following funds sold 70 MB increasing their short position to 320 MB. This is short of the record set February 2010 at 375 MB. Meanwhile, the index funds are long 990 MB. In other developments, wheat planting is 26 percent done compared to the five-year average of 35 percent. Progress in Texas and Oklahoma is running 20 percent behind their average because of dryness. Export inspections were 21.6 MB and above the average needed to reach USDA’s projection of 1.025 BB.
December wheat fell to 624.25 on Monday and made a reversal higher. Prices rebounded to 670 on Tuesday and have since backed off. So far, Monday’s low has held. Right now, a close past 658 is needed for greater confidence that prices have bottomed ending the sell-off from 805.5. In this event, a recovery to 695 or 715 is expected with a top likely on October 13th. Meanwhile, if 624.25 fails, we could work lower to 605. Longer-term, the market is at risk for a decline to 575. during October, wheat futures are higher 63 percent of the time. Next week, the odds are 70 percent that December wheat will be lower.
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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.