On The Money Grain Comments–11-18-10

Corn Outlook:

     Fear of a rate increase in China and debt woes in Ireland sent shivers throughout commodities causing a sell-off in the grains early this week.  Meanwhile, debt problems are heating up in Portugal and Greece.  Gold tanked and the dollar rose. We must remember that the sovereign debt issue in developed countries is not going away soon.  It is a long-term problem and has deflationary consequences.  In other developments, fundamental news in corn is scarce as harvest is over, and the crop is in the bin.  Export inspections were anemic at 25.9 MB and below the average needed to reach USDA’s projection of 1.950 BB.  Shipments are currently running 30 percent below the pace necessary to meet their target.  Last week, the trend following funds trimmed their longs 50 MB to 1.7 BB, while the index funds sold 95 MB reducing their long position to 2.215 BB.

     December corn fell to 509 on Wednesday for a decline of 15.8 percent from the high made last week at 605.  From here, the market rebounded and is expected to meet resistance at 555 or 568.  So far, the pullback from 605 resembles a correction which favors prices rising to a new high.  However, the pattern on the weekly chart is at odds with this assumption.  Right now, we need a close past 581 to put the ball in the bulls’ court and increase the chances of trading past 605.  In this event, and provided there is not a setback below 524, the market should be on the upswing until late November.  Next week, the odds are 62 percent that December futures will be lower.

Bean Outlook:


     Soybean futures were mauled earlier this week from the threat of a rate hike in China and sovereign debt problems in Europe.  For the past five weeks, exports have sizzled, but they may soon cool off from the rise in the dollar.  Last week, inspections were 55.5 MB, a decline of 19 percent from the peak set three weeks ago at 68.3 MB.  China took 39.0 MB or 70 percent of shipments.  However, this is down 21 percent from a few weeks ago.  We have to remember that exports tend to peak by the first week of December.  In other developments, the long position of the trend following funds is at a record 800 MB, while the longs of the index funds stand at 960 MB.  Right now, the size of the fund position is the greatest threat facing soybeans, especially if the sovereign debt issue in Europe worsens.    

     March soybeans fell to 1183 on Wednesday for a decline of 12.6 percent from last week’s high of 1354.5.  The market has regained some of its losses and is expected to encounter resistance at 1268 followed by 1288.  Meanwhile, the short-term pattern shows that unless we back off below 1201, the chances are for an advance to 1365 or 1400.  A close past 1310 increases the odds of this happening.  In this event, look for a top in early or mid December, which could be a multi-month or a multi-year high.  Next week, the odds are 60 percent that March futures will be lower.


Wheat Outlook:

     Strength in the dollar and sluggish exports are pressuring wheat.  Inspections last week were lethargic at 15.3 MB and below the average needed to reach USDA’s projection of 1.250 BB.  Currently, we are running 21 percent below the pace necessary to meet their target.  In other developments, the crop rating for winter wheat improved one point last week to 46 percent in good-to-excellent condition, but is below last year’s rating of 64 percent.  Meanwhile, the short position of the trend following funds has fallen slightly to 115 MB, while the index funds increased their longs 40 MB to 1.030 BB.    

     December wheat tumbled to 617.75 on Wednesday, which was an 18.8 percent sell-off from last week’s high of 760.75.  The market has recovered and expected to meet resistance at 672 followed by 690.  Unless a new low is made, prices are due to be on the upswing until later this month.  From a seasonal perspective wheat futures generally do not bottom until the first or the second week of December.  Next week, the odds are 60 percent that December wheat will be higher.

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