On The Money Grain Comments–12-09-10

Corn Outlook:

     Tight stocks and strength in wheat are the factors supporting corn.  In addition, extending the Bush tax cuts and unemployment benefits are seen as increasing the deficit and bearish the dollar.  Meanwhile, exports are lethargic and running 29 percent below the pace needed to reach USDA’s projection of 1.950 BB.  Inspections last week were on the low end of guesses at 25.2 MB.  The odds are that USDA will lower their estimate in tomorrow’s report.  In other developments, the trend following funds have trimmed their long position to 1.385 BB, while the longs of the index funds have been reduced to 2.180 BB.  For the next several weeks, the market will look to the dollar, issues pertaining to Europe’s debt crisis, and next spring’s acreage battle for a direction.    

     Since last week, March corn has risen from 542.5 and is in a period for a top to develop, although it may only be for the short-term.  Resistance is at 582 with support likely on a pullback to 565-562.  Right now, I am observing two patterns.  The first is that if we close beyond 585, and especially 593, the chances are for an advance past 617.25 to 635.  In this event, a major top, possibly a multi-year high, could occur late this month.  Meanwhile, a decline below 552 puts the ball in the court of taking out the November low of 520.25.  Next week, the odds are 60 percent that March futures will be lower.

Bean Outlook:


     Conditions remain hot and dry in Argentina, which is underpinning soybeans along with the recent decline in the dollar.  Scattered showers are in the forecast, but no significant rain event is expected.  Export inspections last week were down sharply at 33.4 MB, but above the average needed to reach USDA’s target of 1.750 BB.  Since peaking in early November, the pace has fallen 26 percent.  China took 19.7 MB or 59 percent of the total.  This is down from the peak of 49.8 MB during the last week of October.  In other developments, the long position of the trend following funds stands at 635 MB, while the index funds are long 945 MB.

     March soybeans peaked on Monday at 1312.5 followed by a pullback to 1275.25 on Wednesday.  Provided this low holds, prices should be headed to 1325 as their next target.  Unless there is a decline below 1263, the trend is up with the potential for an advance past 1354.5 to 1365, 1400, or possibly 1420.  Cycle analysis shows that this could happen late this month.  Be advised that if a new high is made, the long-term pattern shows that it will likely be a multi-year peak.  Next week, the odds are 55 percent that March futures will be lower.


Wheat Outlook:

     Persistent dryness in the Plains and excessive wet conditions are fanning the flames in wheat.  Prices have risen sharply as global stocks are shrinking.  Meanwhile, no significant rainfall is on the horizon in the Plains, while Australia is expected to stay wet.  In other developments, exports are lethargic.  Inspections last week were 19.2 MB and below the pace needed to reach USDA’s projection of 1.250 BB.  The pace is currently running 19 percent below the level necessary to achieve their target suggesting that the USDA will likely lower their estimate.  Right now, the trend following funds are short 230 MB, which is supportive if they are forced to cover.  In the meantime, the index funds have increased their longs to 1.055 BB.     

     Last week’s comments mentioned that if March wheat traded past 800, the chances improved for challenging the August high of 864.25.  This has occurred and unless we break the low made this week at 766.25, the market should advance to 838 or 850.  In the event that 864.25 is exceeded, look for prices to trade near 890.  In the meantime, be alert for a top that could occur near the end of the month.  Next week, the odds are even as to whether March futures will be higher or lower.

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