On The Money Grain Commentary 3-21-13

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Corn Outlook:

Tight old crop stocks and fund buying are supporting corn.  Last week, the trend following funds added 110 MB to their long futures position increasing it to 195 MB.  The index funds are long 1.920 BB.  Fundamentally, there is little fresh news until the grain stocks and planting intentions reports on March 28^th.  Keep in mind that these reports have a reputation of being a game changer.  Earlier this week, traders were concerned about an unprecedented bank-deposit levy in Cyprus.  Taxing bank accounts is just another form of government theft!  While it caused a ripple in the financial markets, the grains seemed unconcerned.  Export inspections were better than expected at 15.3 MB but hold no bragging rights.  At the current pace, shipments are on track for 715 MB rather than USDA’s projection of 825 MB.  Look for improving moisture conditions and expectations for a larger crop this year to be a drag on new crop futures.

July corn has been trending upward since bottoming earlier this month at 664.5.  Last week’s comments mentioned that we were on track for a move higher to 707 or 716 with a potential top on March 19^th.  Those levels have been reached but the wave pattern shows prices climbing to 725-730 and, maybe, 740.  If you will notice on the chart, a down trend line extending from the high at 755 offers resistance at 725.  If we trade to the targets mentioned, the recovery from 664.5 will not likely end until March 26^th.  This is counter seasonal to the norm of working lower from mid March until the end of April.  For now, a close below 708 is needed for evidence that the rally is over.  Next week, the odds are 60 percent that July corn will be lower.

Bean Outlook:

Soybeans are struggling from the outlook for a bumper crop in South America.  Brazil’s harvest is 50 percent complete while Argentina is just getting underway.  Logistical problems have hampered shipments from Brazil, but it is only temporary.  Export inspections last week were a marketing year low at 8.9 MB.  However, they were above the average needed to reach USDA’s projection of 1.345 BB.  China took 4.9 MB or 55 percent of shipments.  During the past two weeks, shipments to China have really cooled off.  The trend following funds added 55 MB to their long futures position increasing it to 575 MB.  The longs of the index funds were down slightly to 550 MB.  Look for economic concerns in Europe and slowing exports to China to limit price rallies in soybeans.

July soybeans bottomed on Tuesday at 1386.25 and recovered to 1427.25 Thursday.  Additional resistance is expected at 1435-1445.  Look for the recovery to end during the period of March 26^th-29^th.  If you will notice on the chart, a rising wedge pattern is unfolding from the low made last November at 1331.75.  These tend to be bearish patterns with the breakout usually in the direction of the existing trend, which, in this case, is down.  A rally beyond 1463.5 is needed to turn the trend from sideways to higher.  Unless this happens, the chances are that we will break 1331.75 and fall to 1238 or 1210 before the July contract expires.  Seasonally, soybean futures tend to work lower until mid to late April unless there is a short crop in South America.  Cycle analysis points to a bottom occurring on April 26^th.  Next week, the odds are 60 percent that July soybeans will be higher.

Wheat Outlook:

      Wheat is supported from the narrowing price relationship to corn which has increased usage in livestock rations.  Currently, the premium of wheat to corn is about ten cents.  Meanwhile, exports are holding their own with inspections last week at 23.9 MB.  At the present pace, it will be a photo finish as to whether we reach USDA’s projection of 1.025 BB.  In other developments, weather conditions are improving in the southern Plains and Midwest increasing the prospect for a larger world wheat crop.  The trend following funds liquidated 30 MB from their short futures position last week reducing it to 325 MB.  The longs of the index funds fell slightly to 720 MB.

July wheat has been in a recovery since bottoming earlier this month at 686.  Prices traded to 734.75 on Thursday and peaked.  If you will notice on the chart, the down trend line offered resistance.  During the next few days a pullback to 710-705 could occur.  The correction should be complete by March 27^th.  Longer-term, the recovery from 686 is expected to continue to 755, 760 or 770.  Cycle analysis shows that this could take place during the period of April 22^nd-24^th.  Keep in mind that this is counter to the seasonal trend which is down through the end of April.  Next week, the odds are 60 percent that July wheat will be higher.