Grain bull markets demand to be fed

Corn: Sellers gave a few good attempts at moving this market lower, but the long line of buyers prevented much of a setback. There were four different setbacks attempted on Monday, only to have corn finish with a last trade of 1-3/4 lower. This support came in during a day where crude broke support and traded a dollar and a half lower all day long. Wheat attempted to add support while beans pulled on the corn during the day as well.

There was a general lack of fresh news for this market and when that is the case, buyers still feel confident that they are in control. One positive fact for the corn is that the dollar is still on a downtrend, which helps the smaller speculators to feel they will not get run over by instant large fund selling.

While corn is short on news, we just have to keep going with the existing mindset of being bullish while looking out for bearish news. What might be a good idea is to identify a few things that might be negative that we didn’t think about. We must focus on what trade feels just as much as actual information in the market. For example, we are looking at a corn carryout of 745 million bushels. Speculators are always looking forward, however, which means that trade is not buying based on the 745 carryout. They are looking at the potential of that carryout to drop to 600 million.

This same idea applied when talking about corn yield last year. USDA told us they were looking at a 154.3 yield on the December report, but trade started buying looking for that yield to actually drop to 150. This is why there is a saying that a bull market needs to continue to be fed bullish information. If corn is given neutral information, it will actually be seen as disappointment. That alone is not enough to cause a large sell off, but it would be enough to stop the buying. Trade is looking for even smaller carryout, poor U.S. weather and big Chinese purchases of corn. Each of these factors is already in today’s price but has not yet happened. Keep this in mind if we start to see corn pull back down the road even though news at the time is “normal” or “average”…Ryan Ettner

Soybeans: Monday lacked bullish news to continue to feed the bulls. The March contract fell 7-3/4 cents but was able to remain above the 1400 area for the last seven trading sessions. The spread between March and November had narrowed in by another 2-1/2 cents.

It is amazing how fast this spread reacts when the midday weather comes out. The old/new crop spread has already come together by 45 cents in the last seven sessions. Weather is a big market mover for the November contract. We feel this spread should continue to narrow in as long as South American weather stays dry.

The bottom line at mid-day Monday brings Argentina rain that will further reduce dryness lingering in parts of the nation from a long, tough growing season. The moisture deficits will remain in some areas, especially in the Southwest, but sufficient rain should fall for a temporary improvement in crop and field conditions during mid-week. Greater rainfall may occur Friday into Feb. 2, but mostly from northern Cordoba and southern Santiago del Estero to Entre Rios. Rainfall suggested after Feb. 2 will be welcome, but World Weather Inc. still believes there is too much precipitation advertised for the period and we would like to see less precipitation in future model runs. It will likely evolve in time…Steve Georgy

Wheat: The best way to describe the wheat move on Monday is fear-driven buying. All you have to do is Google food prices and you get 31 million search results. It seems the mentality of the world buyers is: buy now or never get any bought or at a minimum you will pay a lot more for wheat if you delay buying by a day.

The reason for this seems to be unrest about sky high food prices that we are seeing around the world. According to the U.N. food agency food index, food prices are higher today than they were back in 2008. In 2008, Minneapolis wheat futures went to $24.26 while the Chicago market went to $13.54-1/2. This is why the end user is nervous and the bullish trader is excited. There are reasons to be nervous in that both the United States and the Chinese winter wheat are suffering under drought conditions.

Also production was down hard in the FSU this past year due to drought. As for supply, we are not in the same predicament that we were in back then. In 2007-08 world stocks fell to 122.66 mmt. Now, the world stocks are projected at 178.00 mmt, even after the FSU drought. Without a major production shortfall in the world, this upcoming year we are not going to run out of wheat. That being said, it looks like the trade and world buyers are going to buy wheat until they are convinced that the Northern Hemisphere crop is a good one…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.

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.

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