Grain futures were broadsided this week because of escalating tensions in the Middle East. Protests in Libya have resulted in hundreds of deaths. The unrest raised concerns of potential disruption of oil and grain shipments in the region. Because of the turmoil, the bulls are more cautious. Be advised that the trend following funds are holding a massive long corn position of 1.650 BB, while the index funds are long 1.885 BB. The size of their position means the market may be vulnerable to additional liquidation. In other developments, export inspections were better than expected at 38.0 MB but below the average needed to reach USDA’s projection of 1.950 BB. While stocks of corn are tight, they are taking a backseat to the flare up in the Middle East.
July corn rallied to 738.75 on Tuesday, February 22nd meeting a target at 738. Last week’s comments mentioned there could be a top during the period of February 23rd-25th. Prices sold off to 672.25 on Wednesday and have since recovered to 712.5. For the moment, there are two wave patterns under observation. The weekly chart shows there is a chance that the long-term advance from the November low at 532 and the contract low at 374.5 could be over. However, old crop corn continues to gain on new crop reflecting underlying support. Meanwhile, a pattern on the daily chart still points to the potential of climbing past 738.75 to 755. In order to swing this in the bulls favor, we need a close beyond 725. More will be mentioned as the pattern unfolds. Historically, corn futures are higher in March 63 percent of the time. Next week, the odds are 60 percent that the July contract will be up.
It was painful for the soybean bulls this week because of the turmoil in the Middle East. Adding to the market’s woes is that conditions are improving in Argentina, a record crop is expected in Brazil, and demand from China is shifting to South America. Meanwhile, export inspections were better than expected at 40.9 MB with China taking 22.8 MB or 55 percent of the shipments. In other developments, the trend following funds have liquidated 150 MB of their long position that currently stands at 640 MB. If bullish sentiment is beginning to shift, additional liquidation could occur. Currently, the longs of the index funds stand at 870 MB.
July soybeans fell to 1305 on Wednesday for a decline of 11.4 percent from the contract high at 1474.5. This is the second greatest sell-off since the long-term advance began from the contract low in June at 917.25. In November, the market fell 12.6 percent to 1186.5. As it stands now, the wave pattern on both the daily and weekly charts lean to the potential of an important top having occurred. For this to be verified, a decline below 1305 is needed. Meanwhile, if we climb past 1378, a more bullish pattern is unfolding. Right now, resistance is expected at 1350 followed by 1370. Failure of 1305 projects prices sinking to 1250. Historically, soybean futures are higher in March 63 percent of the time. Next week, the odds are 60 percent that the July contract will be higher.
The instability in the Middle East is causing traders to take money off the table in wheat. North Africa is a large importer of wheat, and traders are fearful that the unrest could disrupt grain shipments. However, inspections were better than expected last week at 31.0 MB and above the average needed to reach USDA’s projection of 1.3 BB. Right now, the trend following funds have a token long position of 25 MB, but there is a chance that they could go short because of the unrest and seasonal tendency for a decline through April. In addition, index funds are long 1.025 BB, which is not chump change.
July wheat fell to 790 on Wednesday for a decline of 16.9 percent from the contract high at 950.75. As it stands now, the long-term advance from the contract low made last June at 540 is probably over. Short-term, the market is oversold and due for a rebound to 850 and possibly 870. Meanwhile, if 790 cannot hold, look for a break to 745. Historically, wheat futures work lower in March 52 percent of the time. Next week, the odds are 60 percent that they will be higher.
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