Corn: Once again, the bulls were off to the races. Early talk was that China is looking to purchase 9 million tonnes of corn to add back into its reserves. There was some early confusion about this story as some read (or wanted to read) that this buying was going to be all imports. In actuality, this story simply stated that China would buy. All of these purchases will be coming straight from their farmers. In all, hearing that China will be buying that much corn from anywhere remains bullish. It shows that this market is not yet done with the rally.
Watching the corn move higher while beans take a lower day is something that will certainly not continue. Corn did manage to help pull the beans to the positive today but if that bean market should stumble, that might also be felt here as well. With corn slightly overbought a small correction certainly would not break the bullish uptrend.
Given our small carryout and the general market mentality to continue buying, corn will still be seen as a buy on dips until we are proven wrong. Some are comparing this market to 2008, but there are still two issues this market is missing to start talking about those highs. First, a good portion of that rally came from a wet spring planting period, which added concern over getting the crop planted on time. Second, as mentioned before, crude is not trading at the $140 level that we saw then. We still look for this market to continue higher but are not ready to call for 2008 highs yet.
There is certainly nothing wrong with being bullish corn, let’s just take it week by week with long positions and hold off drought and 2008 talk for now. We will continue going long in options while covering downside movements with stops or puts. This has worked for some time now, and we will continue to use this strategy…Ryan Ettner
Soybeans: Beans closed weak as rain continues to fall in South America. The market had rallied recently on potential crop problems in Argentina, which has been plagued with hot and dry weather. Last week, beans rallied 57-1/2 cents off of this news.
Things look a little different now as most of the bean growing regions have seen 0.75 to 1.5 inches of rain. Argentina’s mid-day GFS weather forecast was wetter than earlier on Tuesday. The model increased rainfall in northwestern Argentina Jan. 20-22 and increased it again from Rio Grande do Sul through all of northern Argentina Jan. 24-25. Another boost in precipitation was suggested for southwestern Argentina Jan. 26-27. This could keep the market under pressure as far as weather.
Support should be right around the corner due to China’s president coming to the CBOT later this week. Traders are expecting to see China come out with a big purchase of beans. Also, corn and wheat look strong and could carry beans along for the ride. We are going to continue to look at pull backs as buying opportunities over the next few sessions…Rich Nelson
Wheat: After food riots in North Africa the past few weeks, world traders are getting concerned about food inflation. This is causing imports like Algeria to panic and buy wheat aggressively. This has caught the trader’s attention and they have put “risk” premium into the market.
Algeria purchased 600,000 tonnes of option origin wheat over the weekend. Reports are that they have purchased one million metric tonnes of wheat so far this month. The Algerians are being aggressive in their purchases for fear of social unrest if wheat supplies become short or prices move back to 2008 highs.
In other export news, Libya purchased 100,000 tones and Turkey purchased 145,000 of U.S. Hard Red Wheat. The reality is the world and U.S. stocks have rebounded dramatically from the tight supplies of 2007, but with the current weather problems the market is on edge. We anticipate it will stay that way until the Northern Hemisphere harvest is completed this summer…Jim McCormick
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 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.