Grains report for Feb. 2

Corn: Markets have been beat up for 3 weeks. Funds have liquidated over 100,000 contracts from the high. News that China would re-start their stockpiling policy was supportive. With the dollar -30, the crude +194 and talk of new investment money coming into commodities at the first of the month were all good ingredients for a bounce. But we believe the bounce has limited potential. Funds are still long 40,000 contracts and there is no reason these funds cannot go short. Pipeline supplies are adequate and end users are scale down buyers but they are not ready to chase a rally yet. We think when futures are around 340, then end users will start to take a stand and if futures hit 330, then cash is so cheap the end user should be willing to chase a rally for fear they missed the bottom. Thus for now, we are waiting for that wash out low to switch from a long term economic bear to a neutral to bullish posture into the 2010 growing season. That means traders should still sell a bounce and producers should still get income locked in using an option play that allows you to be short only if the market is going down. If the market is going up, you have a “price box” in which you are not committed to a short. This allows your cash grain to gain in value. The best way for you to understand this is to call the office and hook your computer up to ours. We can then show you via the Evaluator Programs how different strategies will help you…Bill Biedermann

Soybeans: If you were watching closely this morning, the beans ran up to 924 3/4 on the March contract. There was a small correction followed by another push higher to 923 1/4. Those were two quick selling opportunities that were short lived. As we have mentioned before, the line of those willing to sell on a bounce is long. Just as expected a bounce this morning was quickly sold back. It was actually surprising to see a bounce at all today seeing as how the fundamentals were more bearish this morning than ever. Argentina and southern Brazil each received better than expected rains last weekend. To go along with that, their forecast calls for better rains than earlier expected as well. After the recent dryness concerns, this rain will be very welcome in finishing off the crop. To go along with the better weather, it now looks that Brazilian beans have moved from a $3 per metric tonne discount to US beans out to a $12 discount. This is a discount needed for China to switch to Brazilian beans. We will need to keep our eyes on the export news even closer now to see if this switch occurs soon. All of this news continues to suggest that we sell bounces. Short term buying remains possible while the beans remain technically oversold. Those short bursts of buying will provide more fundamental traders with additional chances to sell. Looking farther down the road, a turnaround will gain the most traction if numbers from the Brazil harvest begin to come under the record that is expected. Until we see numbers like that we will continue to sell the fundamental bearish picture that we are given…Ryan Ettner

Wheat: Index (long only) funds continue to add to longs, see Allendale Inc “special reports” commitment of traders. Within the same report you will view Managed Money at a 1/26/2010 level of -34,000 contracts vs +23,000 on 12/01/09 which has taken wheat futures lower. Yes old crop and even projected new crop US and world stocks are very large but as the crude oil goes so goes corn and wheat (starches). Allendale Inc suggest it is an end users market and feeding itself, hand to mouth as long as inter and intra spreads dictate. Any short covering rally is likely to be sold in old crop futures whether CBOT, KCBT as well as MGEX. Key support in MGEX of 493 must hold but Allendale Inc does understand what ultimately may happen to triple bottoms…Joe Victor

Bill Biedermann is Senior Vice President at Allendale, Inc. Ryan Ettner is a registered broker and grain analyst at Allendale, Inc. Joe Victor is VP of Marketing at Allendale, Inc. Allendale is registered with the CFTC and NFA and is a member of the NIBA.

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