Corn: There were a few factors to look at Monday that may be an early sign of a change. First off, the corn saw some initial selling, which appeared to be more fund selling but it ended not more than 10 minutes into trade. Selling that only lasts that long instead of the regular full hour is a first good sign of large speculators cleaning up final sales.
Another good sign was buying going into the close. Not just last minute of trade buying but buyers showing up through the middle of the day all the way to the close. That is a positive sign.
Corn has gone through similar setbacks before. Most recently we saw a slide starting Nov. 9 that lasted to the Nov. 17, which looks similar to what we have just gone through. During that time, funds sold nearly 100,000 contracts, which is also close to estimates on this most recent slide.
Of course, this is all based on what we currently know about the situation in Japan and does not take into account any additional disasters that may occur. Going on this assumption, let’s look back at what happened after the November slide. Trade was choppy and sideways for the following eight trading sessions. There were plenty of choppy higher or lower days which gave opportunities for both bull and bear sides to make their trades. In the end, the smaller speculative buying took over and nearly a month later, the May corn had finally recovered the sell off…Ryan Ettner
Soybeans: Beans rallied Monday after a sharp decline early in the session. The May contract closed 5-1/2 higher. This could spark some buying this week and try to recover back to the 50-day moving average near 1400 again. The long-term uptrend held once again and should be good support as we move through this week.
There is still confusion and concern from the earthquake in Japan. No one knows the size or magnitude of the damage that has been spread across that country or the ramifications it might have when everything is done. This is keeping traders on edge about the direction of commodities in general.
At these price levels, there are fundamental reasons to buy, but the technicals are in control. It was nice to see the beans finish positive today but you need to pay attention to last week’s lows for another leg down if it is violated. Energies and other outside markets had stabilized today and could support soybeans over the next few weeks…Steve Georgy
Wheat: After scoring fresh 3-1/2 month lows, the wheat was able to bounce back a little today. For Monday, it was an inside trading day as today’s range was within Friday’s high and low.
The market rally was capped today by demand fears out of Japan. After the devastating earthquake and tsunami that hit Japan last week, traders are questioning what effects these events will have on demand. Japan is the world’s fifth largest importer of wheat. They are the number two buyer of U.S. wheat. They have purchased 3.387 million tonnes this year, 988,800 tonnes have yet to be shipped.
According to Reuters, trade volume on Monday was 67,600 contracts. This was the lowest trade volume since Jan. 11. This is a pretty good sign that the funds are through liquidating at least temporarily. The break in the grain markets has had a pretty big impact on the intra-market spreads. The wheat/corn spread has narrowed to 54-3/4 cents premium wheat Monday on the May contracts. The widest this spread got for these contract months was 3.89-¾ on Aug. 6. The March contracts went of the board today and their spread was as 36 cents. The narrowest this spread has been on the continuous chart was 18.75 cents in 2000, 29.5 in 1998 and -5 in 1994. What this shows us is that on a feed wheat is much cheaper than corn. This could hurt feed demand for corn if this spread were to stay here for a while.
On the weather front, our lead forester Drew Lerner reported today that there is still no significant opportunity for drought relief in the Southwester Plains for at least the coming week and probably 10 days. This could be supportive to the market as it looks like the fear liquidation finally has subsided.
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.