Grains react after last week's stiff drop

Corn: Friday’s sell off had taken two factors into account. First, we started selling when China wanted speculators out of the market. In addition, the limit move’s second round occurred on an assumption that China would raise interest rates over the weekend. For many sellers, the second factor unfortunately never happened.

Corn was aggressively bought when China did not do anything to their interest rates, at least for now. It is still expected that they will raise those rates by the end of the year. Also on Friday, while focus was elsewhere, the dollar managed to break recent resistance allowing for a continued higher move today. With the potential interest rate change still looming over this market, as well as an uptrending dollar, it was a little surprising to see the size of gains found in corn on Monday. Funds were estimated buyers of 14,000 contracts early on during the session, which is less common on a higher dollar day. Further advances in this market are likely to be slower than the first time around.

December 2011 corn will also have one more factor to contend with. Many hedgers may feel that they missed a selling chance by the close on Friday. It is unlikely that same group will sit aside during any good bounce. On another bounce, hedging for next year will likely be more active keeping a wider spread between current and next year’s December contracts. Fund buying was certainly supportive, but further buying would come as quite a shock from the pure speculators. There still is no change to the underlying fundamentals, but technically we did not finish filling the chart gap on a second attempt. A faster and more confident move higher would have been easier to get behind if China would have just changed rates, but instead we will now be slightly heavy in anticipation as well as most traders feeling the need to fill the gap before a new push higher can be made…Ryan Ettner

Soybeans: It is almost a little disappointing to see soybeans post their 17-1/2 cent close when corn was up 21-1/2. There is still a bit of room left to make up for Friday’s limit down trade. Soybean-related news was supportive, as the NOPA crush report came in both above expectations and above the pace needed to meet USDA hopes. Also, overnight unknown buyers (buyer?) bought both soybeans and soyoil…Rich Nelson

Wheat: As I stated Friday, fear and greed move the markets. Friday’s break was on fear that China would raise interest rates over the weekend. They were expected to raise interest rates as a way to cool down their overheating economy. When they did not raise their rates as expected, the fear waned and the buyers came back. This gave today’s trade action a classic “Sell the rumor, buy the fact” trade day. The export inspections were on the low end at 15.320 million bushels. The trade was expecting the inspections to be between 15 and 20 million bushels. It was also announced that Iraq purchased 100,000 tonnes of US HRW for the 2010-2011 marketing year. Dry weather in the western hard wheat areas continues to be short changed on the rain front. While Australia is getting too much rain and it is slowing their harvest and hurting their wheat quality…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.

About the Author

Ryan Ettner is a registered commodities broker and grains analyst at Allendale, Inc. Steve Georgy is a Sr. Broker/Manager at Allendale, Inc. Jim McCormick is Senior Broker/Manager at Allendale, Inc. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com

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