Tight stocks and dryness in Argentina are the factors supporting corn. Although there have been concerns of year-end profit taking by the funds, it has been a nonevent. Last week, the trend following funds added 130 MB to their long position increasing it to 1.655 BB. Meanwhile, the index funds tacked on 25 MB raising their longs to 2.235 BB. In my opinion, the magnitude of the speculative long position will eventually lead to the demise of the grains. In other developments, export inspections were 32.5 MB and below the average needed to reach USDA’s projection of 1.950 BB. Although shipments have improved recently, they are running 19 percent below the level necessary to meet USDA’s target. The next mover and shaker in the grains will be the final production report on January 12th.
March corn has been in a steady rise from last month’s low at 520.25. Prices peaked on Wednesday at 626.5, but should find support at 612 followed by 607 and 600. Be advised that the daily, weekly and monthly charts concur that the market is likely in the final stage of its advance from the June low at 356.75. This suggests that we need to be alert for a multi-month or a multi-year high. Right now, eighty-five percent of traders are bullish corn indicating that a top could be around the corner. However, the wave pattern projects prices advancing to 635 and possibly closer to 650 or 680 before one occurs. Cycle analysis points to a peak developing during the second or the last week of January. Historically, corn futures are down in January 52 percent of the time. Next week, the odds are 70 percent that March futures will be lower.
Hot, dry weather in Argentina has been the driving force in soybeans. Conditions are expected to remain stressful for the next several days, which is supportive. Right now, I am becoming concerned about the length of the long position held by the funds. Last week, the trend following funds added 60 MB to their long position increasing it to 740 MB. This is 60 MB short of the record made in November. In the meantime, the longs of the index funds have risen to 985 MB or 20 MB below their record. As it stands now, the combined long position of the funds is 51 percent of our soybean production. This is an unhealthy situation, which could lead to a serious price debacle if an unforeseen event arises. In other developments, export inspections were 23.3 MB, which is the slowest pace seen since September. China took 14.3 MB or 71 percent of the shipments.
March soybeans traded to 1396.75 on Thursday, which edged close to a target of 1400 mentioned in previous comments. This is likely a short-term top in which support can be expected at 1355. Currently, the wave pattern of the daily, weekly and monthly charts concur that the market is probably in the final stage of its advance from the June low at 906.75. However, the pattern is not as clear as the one in corn. At this time, ninety-three percent of traders are bullish soybeans, the highest level seen since prices peaked in July 2008 at 1660. The bulls are pumped! However, unless there is a decline below 1325, prices are on track for an advance to 1420-1430 as the next top. Meanwhile, a major top is not expected until we reach 1460. This could occur during the second week of January. Historically, soybean futures are lower in January 73 percent of the time. Next week, the odds are even as to whether March futures will be higher or lower.
Wheat futures have become a follower of corn and soybeans, although there is support from dryness in the Plains. Weather has improved in Australia, which is allowing the resumption of harvest. This led to profit taking on Thursday. However, much of Australia’s crop will have to be used for livestock feeding rather than human consumption. Export inspections were below estimates at 17.4 MB and the level needed to reach USDA’s projection of 1.250 BB. In other developments, the trend following funds are short 25 MB, while the index funds are long 1.055 BB.
March wheat rallied to 806.25 on Wednesday and backed off. Support is at 765. Unless there is a decline below 742, the trend is higher with the market on track for a move upward to 825 or 845. If the August high of 864.25 is exceeded, we could trade to 890. Cycle analysis points to a top developing during the second or last week of January. Historically, wheat futures are higher in January 52 percent of the time. Next week, the odds are 60 percent that the March contract will be lower.
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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.