On The Money Grain Comments–12-2-10

Corn Outlook:

     Corn futures are torn between bullish and bearish forces.  Stocks are at their tightest level since 1995-96. Meanwhile, uncertainty among traders has heightened because of potential spreading of the debt crisis in Europe.  Because of this, traders are in a quandary regarding the direction of the market.  Until confidence is restored regarding Europe’s debt problem, volatility in commodities will persist.  In the meantime, corn futures were lifted this week from the rally in soybeans and wheat.  During the past three weeks, the trend following funds have trimmed 345 MB from their long position reducing it to 1.405 BB, while the index funds cut their longs to 2.225 BB.  In other developments, export inspections were 20.8 MB and below the average needed to reach USDA’s projection of 1.950 BB.  Currently, the pace is running 33 percent below the pace necessary to achieve their target.

     After a slow start this week, March corn rose past resistance at 562.25 to 568 turning the short-term trend higher.  We are in a period for a top to develop, but the market will not get into trouble unless it falls below 542.  Unless this happens, the recovery from last month’s low at 520.25 may continue to 575 with a peak developing after the first week of December when the next cycle high is due.  Meanwhile, the wave pattern of the daily chart points to the potential for an advance beyond 617.25, but the weekly chart is at odds with this assessment.  Be advised that a sell-off below 542 diminishes the chance for a new high.  For greater confidence of reaching a new high, a close past 585 is needed and, preferably, 593.  Next week, the odds are 70 percent that March futures will be lower.

Bean Outlook:


     Dry conditions in South America continue to support soybeans.  However, the rising dollar and sovereign debt problems in Europe are in the back of traders’ minds.  Last week, the trend following funds added 15 MB to their long position that currently stands at 640 MB.  Meanwhile, the longs of the index funds were unchanged at 950 MB.  Export inspections were 48.9 MB and above the average needed to reach USDA’s projection of 1.750 BB.  China took 41.2 MB or 84 percent of the shipments.  While the underlying fundamentals for soybeans are supportive, large investors will head for the sidelines, or flock to the dollar, if the debt crisis in Europe worsens. 

     March soybeans traded to 1295.5 on Thursday exceeding a target mentioned in previous comments at 1290.  We are in a period for a top to develop, but unless there is a close below 1260, there appears to be further upside potential.  Currently, both of the wave patterns on the daily and weekly chart shows prices climbing past the high made last month at 1354.5.  For greater confidence that this will occur, a close beyond 1310 is needed.  In this event, prices will be in a position for advancing to 1365, 1400 or 1420 with a top developing later this month.  Be advised this has the potential of 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.


Wheat Outlook:

     Dryness in the Plains and excessive moisture in eastern Australia sparked a rally in wheat this week.  Meanwhile, crop conditions in the U.S. the past couple of weeks have been stable with 47 percent of the crop rated in the good to excellent category.  This is below last year’s rating of 63 percent.  In other developments, exports continue to be a sore spot with inspections last week at 20.1 MB. and below the average needed to reach USDA’s projection of 1.250 BB.  Currently, they are running 22 percent below the pace necessary to achieve their target.  Right now, the trend following funds are short 225 MB, while the index funds are long 1.040 BB.  Short covering from the funds may underpin the market a while longer.      

     March wheat rallied to 767.5 on Thursday meeting a target mentioned in previous comments at 745.  The short-term pattern shows that unless there is a decline below 720, there is a chance of challenging last month’s high at 800.  However, a close past this level is needed to warrant an advance to the contract high at 864.25.  Cycle analysis points to a top occurring after the first week of December.  Next week, the odds are 80 percent that March futures will be lower.

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