Corn: Once again, corn on Monday was caught up in higher dollar trade. The difference was that it did not come from European news but from Japan. Their government decided to sell the yen to bring it back in check with other currencies. What surprised markets the most was that the size of the selling The change in the yen was almost double expectations.
In the past, this strategy has been known to work only for the short term. Looking back at the chart for the yen, we see that the last major drop in that market was fully recovered in just three days. What this suggests is that the dollar may resume its downtrend as early as Tuesday morning, which will keep general support in corn.
Tuesday morning, corn also will get its first publicly available estimate on carryout. News wires will release average trade estimates late in the week. Early thoughts are for corn to lose another 1 to 1-1/2 bushels of yield at the most. We will look for this change of focus to steer corn away from following the dollar, but it still might take another day for that focus to shift.
Lastly, it should be mentioned that a large clearing firm, MF Global, filed for bankruptcy on Monday, which brought in fear of liquidation from anyone who trades through them. While some liquidation is possible, it is likely that it is being made more of a story on TV than what is really likely to occur. What is most important is that support held once again Monday in December corn and, in all, corn did well during the volatile dollar-based trade over the last two weeks.
Bulls will be looking short term for a turnaround in the dollar to result in a good bounce during the week. Bears might have to wait a while for the next round of negative news. We will point out that the USDA was on the bear side on the last supply/demand report. A new release will come next Wednesday…Ryan Ettner
Soybeans: Beans closed lower as the dollar surged higher on Monday. There is a lot of talk surrounding MF Global and the effects the markets might have due to the firm filing for Chapter 11. We don’t feel this had much impact on the markets at all on Monday. Beans were lower due to the strength in the dollar and commodities taking another step back. The dollar has been a key factor for the beans and could continue this week.
Fundamental news is limited, but we could see USDA reshuffle things again next week. We are looking for a potential increase in ending stocks next week from 160 million to 180 million. We are looking for yields to drop slightly from 41.5 to 41.4. The biggest problem that beans are facing is exports. We feel this increase in ending stocks will come from a drop of 35 million bushel in exports. Beans will need to see corn continue to surge higher if we are going to hit our objective of 1300 again.
South American weather could be looked at as negative now that they have received some rain in most of the areas that could have been a concern. We are now long futures and look for support at these levels. We are also long meal in the way of a bull call spread…Steve Georgy
Wheat: Wheat sold off as the market was pressured by outside market forces on Monday. The pressure began in the overnight market as Japan intervened in their currency to try to push it lower. This had the dollar rallying. The higher U.S. dollar makes the U.S. exports more expensive and this is not what we need at this time.
As of last week we have sold only 60% of USDA projected exports. This is below the five-year average of 66% sold for this time of year. If this pace keeps up, the USDA will have to lower projected exports and add them to an already big ending stock number. The USDA currently projects wheat ending stock to come in at 837 million bushels. With this weak export pace, Allendale expects the ending stock number to be raised to 891 million bushels.
The other news affecting the market Monday was the bankruptcy filing of MF Global. With the filing of bankruptcy, the CME Group, as well as ICE, limited trading of MF Global customers to liquidation only. This was thought to have put additional pressure on the market.
As for the rest of the week’s trade action, we look for a choppy trade. There is a lot of information that will have to be digested this week on the macro front. We have a G20 meeting that will be discussing the ongoing debt situation in Europe. We have the Fed meeting going on both Tuesday and Wednesday. Then the week finishes with the October employment report on Friday. Lastly, the market will be watching how the MF Global bankruptcy plays out this week.
All of these activities will impact the wheat market the question is to what degree. In the big picture, we are more negative to this market. With comfortable supplies of wheat, both overseas and in the United States, it is hard to be bullish wheat unless the weather problems in the U.S. and Ukraine become more severe and limit new supplies from coming onto the market. With the NOAA forecasting a dry winter for the hard red wheat belt this could be the weather situation the cuts supply and drive the price of U.S. wheat higher…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.