Corn: Funds were not in the corn market on Monday. This would normally mean a slightly bearish influence. With the upcoming production report bound to be bullish, it meant a small bounce instead.
Early talk circulating around trade is for a three bushel decrease in production. This is not enough to scratch the number given to us on Friday. Overnight traded right down to the long standing uptrend line and held around the 455 level. Holding that uptrend means that “regular” trade can still buy this market back ahead of the report at the end of the week.
There are a couple good reasons to not believe in a move back to the 528-3/4 high that December recently came from. First off, it would take a large scale reinvestment from the funds to push corn that high. While possible, they have recently been silent or small sellers. Second, the addition of 300 million bushels to stocks avoids the threat of a sub 1 billion bushel carryout. There is always added panic buying when talk starts to circulate about carryout falling below that important level.
What we will need to do is watch the trendline because if it is taken out then the corn will find itself trading weak as we have already seen in wheat. That uptrend line is also the first estimate on where we would find fund sell stops. Those stops are important because it is typical to find that once sell stops are hit from those guys, it tends to signal the end of their investment in that commodity…Ryan Ettner
Soybeans: The soybean trade, like corn, came back from early losses. There was still a net close lower. With an active U.S. harvest ongoing, the removal of supportive corn fundamentals, and more talk of a big Brazilian crop, this market is still a troubled one. Net selling by funds was seen at 4,000 contracts on Monday.
For a longer-term picture, we look for USDA to raise yield on Friday’s report from 44.7 to 44.8. Our expectation is to see ending stocks increase slightly from 350 to 366 million bushels. This number is still bearish, just as anything over 300 is. In our weekly meeting with the brokers, available for you to view on our homepage, we highlighted how falling corn ending stocks in past months correlated with higher prices. We also showed in that meeting how soybean ending stock changes have not at all correlated with price. From July to August to September USDA went from 360 to 360 to 350. If stocks increase to 366, shouldn’t we be at prices under those traded from July through September? That would mean something like 875 or so.
This market has turned bearish but we can only say 1000 or our fundamental downside target right now. On the charts officially an uptrend is still intact. A close below 1054 is needed to break this market…Rich Nelson
Wheat: The export news over the weekend was not good for the wheat market. Egypt stiffed the U.S. when it purchased 240,000 million tonnes of French and Canadian wheat. The U.S. did sell some to Iraq along with Australia and the Ukraine. The total purchase was 240,000 tonnes. After the sale was announced, Iraq’s Trade Minister said that they had purchased enough wheat to cover their needs for the 2010-11 year. This is not good news for the USDA’s export estimates.
The last three weeks sales numbers have not been strong enough to meet the export sales targets. If we do not turn this trend around quickly, they will have to cut the export estimates and add these bushels to the ending stocks. This news out of the U.S. and better crops out of Australia and Argentina will keep the fundamentals of the wheat markets bearish. With this negative fundamental outlook, we will look to sell this market.
Technically, the chart is oversold and due for a technical correction so I would recommend being patient and look to sell a corrective bounce…Jim McCormick
Ryan Ettner is a registered commodities broker and grains analyst at Allendale, Inc. Rich Nelson is Director of Research at Allendale. Jim McCormick is a Sr. Broker at Allendale, Inc. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com.