On the Money Grain Commentary 9/16/10

The good news is corn may be approaching multi-year highs, the bad news it, you probably won’t have much of it to sell if the current harvest reports are to be believed. Dewey Strickler explains as he analysis the week’s activity from the CBOT and what it means for the nation’s farmers.

Corn Outlook:

 Exuberance in corn abounds from expectations that yields will fall near 160 bpa causing 2010-11 ending stocks to drop below 1.0 BB. While this creates an optimistic price outlook, we must remember that the combined long position of the trend following and index funds stands at a record 4.140 BB, or one-third of production. This position is larger than the one they held when corn was trading at $7.50 in 2008. If you recall, when the wheel fell off back then, prices fell over $3.00. In other developments, harvest is 11 percent complete compared to the average of 6 percent. Export inspections were in line with estimates at 36.3 MB. 

Since bottoming at 415.25 in August, December corn has risen 20 percent to 498.5. This is near psychological resistance at 500 and a technical target at 505. A secondary target is at 520. Be alert for an intermediate-term top that could occur next week. Support is likely on a pullback to 475. Longer term, the trend is higher. Cycle analysis points to a top ending the rally from the contract low at 343.25 to develop the second week of October.

Be forewarned that when prices peak, the chances are that it will be a multi-month or multi-year high. Next week, the odds are 80 percent that December futures will be lower.

Bean Outlook:

World soybean stocks are ample, but the market is underpinned from strength in corn and expectations of improving demand, especially from China. However, traders are bullish and this suggests that the market will need a continuous input of friendly news to feed their appetite. Eventually, the length of their position will pose a challenge for prices.

 In other developments, the crop ratings fell one point to 63 percent in good-to excellent condition and are five points below a year ago. Thirty-eight percent of the crop is dropping leaves, which is ahead of the average of 30 percent.

November soybeans fell to 1022.75 on Monday, which probably ended the pullback from last week’s high at 1057. However, if 1022.75 fails, there could be a test of the low at 993.5 again. Unless we close below this level, the longer-term trend is higher. Cycle analysis points to a top occurring during later next week, although it may the second week of October.

 Be advised that this could be a multi-month or a multi-year high. Next week, the odds are 70 percent that November futures will be lower.

 Wheat Outlook:

 News in wheat is mixed. Production cuts in Russia and dryness hampering planting this fall’s crop are supportive. Meanwhile, Australia’s production has been raised to 25 million tons and Egypt cancelled some purchases of U.S. wheat this week, which caused a decline on Thursday.

In the U.S., 83 percent of the wheat crop has been cut, which is below the average of 91 percent. December wheat peaked at 754.5 on Monday and should encounter support near 700. However, we could test the August low or fall slightly below it. Since peaking in early August at 868, the market has been undergoing a correction that is developing into a complex sideward pattern. When it will end cannot yet be determined.

Once prices become oversold and the correction is complete, a rebound to around 780 could occur. Meanwhile, the bulls are running and if they can maintain control, they should test prices above 900.

 Next week, the odds are 60 percent that December futures 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.