Corn: Looking at Monday's close, it looks much worse when looking at the quote than it does when looking at the chart. It is tough to see any day that is double-digit losses and not get somewhat pessimistic.
What will be important to keep in mind is that this March contract can still pull back another 15 cents without threatening even the first area of support. Monday's trade saw one bullish story followed by two misconceived bearish reports. First off, Mexico bought another 145,000 tonnes of U.S. corn. Shortly after that was news that China may looking to buy 1 million tonnes of Australia feed wheat as a substitute for higher priced U.S. corn.
This is an issue that we have brought up many times before. What are they really substituting? They haven’t bought any U.S. corn yet. As far as we can see, they are substituting zero purchased bushels with zero. The wheat story should be properly viewed as neutral. Of course, trade still has the big 9 million tonnes of U.S. corn to China on its mind so that was part of the cause for today’s setback.
Combined with that, trade saw the USDA put out an early new crop carryout estimate of 1.127 billion bushels. Unfortunately, those numbers were based on the November crop report. Since then, old crop carryout has fallen from 827 million bushels to a current level of 675. If you adjust their numbers to take into account the current carryout, you get a new crop number of 975. That is much more in line with our expectations.
Many corn bulls were looking for a pullback to buy from anyway, and they will get more active if another one is seen soon. Monday was a pullback as a result of news that did not have any real teeth. It should be noted that the dollar market came close to taking out important resistance levels that could project a fair amount higher. There is plenty to keep an eye on for a turnaround so let’s not get too caught up in today’s profit taking day while looking for more longer lasting factors which could turn this market…Ryan Ettner
Soybeans: Beans were under pressure Monday from the bearish USDA acreage outlook. USDA said that U.S. farmers will plant 78 million acres this year. That is up from 77.4 million in 2010. Monday’s setback was also from profit-taking and fund-selling. It was reported that funds were sellers today of 6,000 contracts. Option expiration is this Friday, and it seems like the largest open interest is around the $14 area. We should see this area as a battle ground throughout the week. Analysts are suggesting Brazil’s potential record crop (69.8 million tonnes) is 9% harvested. This could keep a bearish tone for now as we start to see exports shift to South America. NOPA’s January crush numbers are 144.635 million bushels, slightly above an average of analysts' estimates for 144.24 million. It was less than needed to meet USDA though…Steve Georgy
Wheat: Wheat was higher again as export demand and weather fears kept a bid under the market. March Chicago settled 5 higher and the funds purchased an estimated 3,000 contracts on Monday. After Friday's big purchase of wheat by Egypt, other countries seemed to get more aggressive. Over the weekend, Iraq purchased 350,000 tonnes of wheat from the U.S. and Australia. The U.S. sold 250,000 tonnes, while the Australians will deliver the rest. This deal was a bigger sale than expected as the Iraq tender was only for 100,000 tonnes.
In other export news, Tunisia bought 100,000 tonnes of soft wheat. News out of Egypt is that wheat purchases are preceding normally and the ports are open and operating. The other big news is the weather. China finally received some much needed precipitation in the form of snow but it will not be enough to break their drought. Traders need to remember this is China’s dry time of year and 2 good inches of rain in late February or early March will go a long way to improve their crop. Also remember most of China’s wheat crop is irrigated.
For the U.S., the warm weather the past few days has melted the snow cover. This is being viewed as a two-edged sword. The melting snow has given the crop some much needed moisture, but it will now leave the crop susceptible to any cold weather. Remember that the winter wheat region of the country had temperatures as low as -30 below last week. Unfortunately for those tired of the snow and cold, we still have a lot of winter yet to go this year…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.