Hunting season was declared on the corn bulls in early November because of Europe’s sovereign debt crisis and the uncertain status of ethanol credits. During this time, the dollar rose 5.0 percent causing corn futures to shed 15.7 percent of their value. As a result, the trend following funds liquidated 240 MB of their long position reducing it to 1.460 BB. Short-term, the bleeding has stopped and prices have recovered. Meanwhile, the index funds stuck with their longs and added 85 MB increasing their position to 2.3 BB. In other developments, strength in the dollar is weighing on exports, as inspections were lethargic at 24.4 MB and below the average needed to reach USDA’s projection of 1.950 BB. Currently, they are running 29 percent below the pace necessary to achieve their target.
March corn fell to 520.25 this week, which ended the sell-off from the high made earlier this month at 617.25. The market is extremely oversold with one of the trend indicators at its lowest point since June when prices were at 356.75. Short-term support is at 544 followed by 535. Unless there is a decline below 520.25, we are due for a recovery to 560 and possibly closer to 575 with a top likely during the first week of December. The wave pattern of the daily chart shows the potential of rising past 617.25, while the weekly chart is at odds with this assessment. For greater confidence of trading to a new high, a rally and close beyond 585 is needed. Historically, corn futures trade lower in December 52 percent of the time. Next week, the odds are 80 that December corn will be down.
Soybean futures are recovering as news of China increasing their bank reserve requirement has run its course. China is the biggest buyer of U.S. soybeans, but the pace has slowed the past few weeks. Inspections were 42.7 MB last week and above the average needed to reach USDA’s projection of 1.570 BB. However, this is 29 percent below the peak set in October. China took 30.4 MB, which is down 38 percent from their high. While they continue to buy U.S. soybeans, the pace has slowed. In other developments, the long position of the trend following funds has fallen 175 MB to 625 MB, while the longs of the index funds are down slightly to 950 MB. Weather in South America is forecast to be mostly dry the next several days with only scattered showers on tap. This will likely provide underlying support until another round of economic trouble surfaces.
March soybeans have been in a trading range since they bottomed last week at 1183 and have risen to the upper end of the range. Support is at 1235 followed by Monday’s low of 1198. Unless there is a decline below this level, and especially 1183, we are due for a recovery to 1278, or 1290. A top could occur in early December. The wave pattern on both the daily and weekly charts show the chance of rising past the high made earlier this month at 1354.5. Right now, a rally and close beyond 1310 is needed for greater confidence that this will occur. From a historical perspective, soybean futures are lower in December 58 percent of the time. Next week, the odds are 80 percent that March futures will be higher.
Wheat has weathered the rising dollar because of concerns regarding the crop. Crop conditions improved one point last week to 47 percent in the good-to-excellent category, but are below the rating of a year ago of 64 percent. Kansas and Oklahoma improved 2 percent and 6 percent respectively, while Texas was down 3 percent. Exports are becoming a concern as inspections last week were a paltry 13.7 MB and below the average needed to reach USDA’s projection of 1.250 BB. We are currently running 25 percent below the pace necessary to meet their target. In other developments, the trend following funds increased their short position 115 MB to 230 MB, while the longs of the index funds are down slightly to 1.075 BB.
March wheat bottomed last week at 656.25 ending the decline from the high made earlier this month at 800. Prices have risen to 697 and unless there is a sell-off to a new low, they are due for a recovery to 710, 730, or possibly 745. In order to turn the longer-term trend higher, a close past 765 is needed. Right now, cycle analysis points to a top developing during the first week of December. Next month, wheat futures are higher 53 percent of the time. Next week, the odds are 90 percent that the December contract will be lower.
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