Corn: Corn set itself between dollar support and a lack of fundamentals offering resistance. In outside markets, everything appears to be going in the direction we expected. While the Sunday night meeting of the European Union accomplished little, it was still enough to get a positive reaction, which sent the euro higher again. That now means we have a breakout higher in the euro currency and a breakout lower in the dollar. This tells us that we can expect last week’s trend to continue this week. That trend is a lower grind from the dollar, which offers support to all commodities.
A case can now be made that the dollar is in more of a pullback but really might be reversing with only December contract lows left as chart support. Bulls can use this lower dollar as a reason to buy corn and they can also point at the very positive reaction crude had today as well. Bears may sell rallies as they know little of this recent bounce has to do with fundamentals.
Corn is still 16 days away from the next supply/demand report to offer fresh news to trade. Until that time, it looks like we are in for at least another week of following European news and dollar changes. Both buyers and sellers should have more opportunities for short-term trades this week with a slow bullish bias expected.
In other news, harvest advanced to 65% complete from last week’s 47%. This will not impact prices as harvest progress is not a market factor now…Ryan Ettner
Soybeans: It has been a while since beans lead the charge higher, but they managed to do it Monday. Funds bought 8,000 contracts and is there biggest purchase we have seen from them in 10 sessions. Last week, beans were being sold against corn and wheat. Profit-taking or unwinding of spreads helped to keep some of the strength Monday.
USDA is saying beans are 80% harvested vs. 91% a year ago and a 5 year average of 71%. That means that we are ahead of the five-year average but still behind last year’s pace. The weather is still favorable and should see this good pace continue.
Beans were helped out Monday from the strength in crude. Crude oil was up more than $4 and looks like it could give more support this week with such a strong close. The dollar fell more than 0.30 and could remain volatile this week with the market continuing to focus on Europe. We feel beans are still undervalued at these levels and have a target near 1300. Support is forming near 1220 and at last week’s lows of 1207 in the January contract.
We are going to try and buy pull backs this week if we can retest those levels. The chart is negative to beans and could be a reason that we are undervalued. USDA has Brazilian bean estimates plugged in for 73.5 million. That is well below the other three private firms. We feel USDA might raise their estimates for the Brazilian bean crop on the next report Nov. 12…Steve Georgy
Wheat: Wheat closed higher on the day Monday as a risk-on mentality was seen across all sectors off the financial markets. The macro market was supported on a positive economic reading out of China and hopes that the EU is close to finding a resolution to their ongoing economic crises.
While we were sleeping, China released their PMI number showing a rebound in their manufacturing sector after three down months. This number was better than expected and it helped erases fears of hard landing for China’s economy. On the EU front, there was no resolution to the debt crises. There seems to be some progress being made and that was enough to get traders willing to be buyers. The next EU meeting in now scheduled for Wednesday.
The commitment of traders report, from the CFTC, that was released Friday showed that managed money added to their short positions last week. They are now short 37,851 contracts. This is one of the largest short positions that they have carried in the past few years. This selling is negative in the short term, but if the market gives these traders a reason to liquidate it could generate a surge higher on a short covering rally.
Wheat ratings, released after the close, showed that only 47% of the newly planted crop was rated good to excellent. This ties last year’s poor start and is the lowest since 1992. The crop will need rain soon to turn its prospects around before it goes into dormancy. The near-term direction of the wheat market will be dictated by the macro market direction.
In the big picture, we are more negative to this market. With comfortable supplies of wheat, in both the world and the United States, it is hard to be bullish the wheat until a new weather problem develops that might limit new supplies from coming onto the market…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 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.