USDA delivered the final 2010 Crop Report this week that had anxiously been awaited by traders and producers. A bullish report was expected and traders were not disappointed. Ending stocks of corn were lowered to 745 MB from 832 MB in December. This was enough of a reduction to fan the flames. Meanwhile, caution is warranted at these levels, as the bulls are heavily long. In addition, large traders seem to have little fear of a sell-off. They view commodities as an asset class and expect them to continue higher anticipating an uptick in inflation. As of last week, the trend following funds were long 1.580 BB., while the long position of the index funds stands at 2.285 BB. In other developments, export inspections were below estimates at 20.5 MB and the average needed to reach USDA’s projection of 1.950 BB. Currently, shipments are running 27 percent under the pace necessary to achieve their target.
March corn rallied the 30-cent limit on Wednesday because of fund buying generated by the crop report. Additional strength was seen on Thursday with prices trading at 649.5. This was short of a target mentioned in previous comments at 650. Currently, we are due for a short-term top in which there could be a 1-2 day break. Support is expected at 635-630. Once the pullback is over, prices should continue upward to 660 or 680. Cycle analysis points to a top developing on January 21st, followed by January 25th and January 28th. Be advised that the long-term momentum indicators are at an extreme overbought level. In addition, the wave pattern of the daily and weekly charts show that the market may be close to reaching a multi-month or a multi-year high. Next week, the odds are even as to whether March futures will be higher or lower.
The bulls rejoiced when the USDA lowered ending stocks to 140 MB to 165 MB in December. Although the report is supportive, it failed to produce any surprises. Meanwhile, traders scrutinized Argentina’s crop estimate closely, which was lowered 1.5 million tons to 50.5. In the meantime, Brazil’s crop was left unchanged at 67.5 million tons. While domestic stocks-to-usage at 4.1 percent are the lowest in three decades, world stocks-to-usage are 22.8 percent and in the upper third of the twenty-year range. This reflects that while stocks are short in the U.S., there is no global shortage. Export inspections were 38.2 MB and above the average needed to reach USDA’s projection of 1.590 BB. China took 20.8 MB or 54 percent of the shipments. As of last week, the trend following funds were long 710 MB, while the index funds long position stands at 980 MB.
March soybeans traded sharply higher on Wednesday after the report and peaked Thursday at 1432.5. This is short of a target mentioned in previous comments at 1440. Support is expected on a setback to 1410 followed by 1393. Currently, the long-term momentum indicators are overbought which means the market is running on fumes. However, unless there is a decline below support at 1355, the trend is up and there could be a run to 1460 or possibly 1495. Be alert for a major top that could occur on January 21st followed by January 28th. The wave pattern of the daily and weekly charts points to it potentially being a multi-month or a multi-year high. Next week, the odds are even as to whether March futures will be higher or lower.
The USDA projects lower ending stocks of wheat. Ending stocks are forecast at 818 MB compared to the December estimate of 858 MB. In the first estimate of wheat sown last fall, seedings are forecast at 40.9 million acres, up from 37.3 million a year ago. Meanwhile, the bulls still have concerns about weather in the Plains and Australia. Export inspections last week were below estimates at 23.6 MB and the average needed to reach USDA’s projection of 1.3 BB. Currently, the trend following funds are long 10 MB, while the long position of the index funds stands at 1.070 BB.
The peak made on January 3rd in March wheat at 825 is likely an intermediate-term top as the trend indicators have turned down. Support is expected on a pullback to 740 followed by 720 with resistance at 795. Cycle analysis points to prices trading sideways to lower until January 20th or January 26th. Right now, the market needs additional bullish input in order for it to trade past 825. Next week, the odds are 60 percent that March futures will be lower.
Want the kind of intel that helps serious producers succeed? Sign up for a FREE! trial subscription to our daily newsletters.
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.