Grains digest MF Global, USDA, weather

Corn: Friday this market was given the analysts’ average estimate of 801 million bushels, which suggests a price around 650. Sure enough, traders kept the December price linked closely to that carryout number. There was a period where the beans fell off and corn followed briefly but then it came right back up to the 650s.

As mentioned on Friday, buyers will have to raise their buying levels to take advantage of setbacks. Monday showed that those buys might need to be moved as high as 748. That type of buying doesn’t provide good risk/reward opportunities, as far as we can see. With the November supply/demand report having no real pattern of carryout changes, it makes sense that corn does not want to pick a level too much higher or lower than 650 going into Wednesday.

There is talk, however, that a brokerage firm (early reports suggested CME Group) is petitioning the USDA to hold off this crop report until next Monday to work on lingering issues with MF Global traders. For now, this is just talk, but if it were to come true we would simply assume trade to go back to what we saw last week. If this report is pushed back, it would then allow for larger swings higher and lower before narrowing back up again going into Friday.

Like we mentioned, it is only talk for now, and we will mention if we hear anything else on this issue. For now let’s assume this report goes on schedule, which is likely to result in a very calm trade day Tuesday focused right around the 655 December price…Ryan Ettner

Soybeans: Beans fell as traders get in position ahead of the USDA report on Wednesday. Volume has been light, but beans have managed to stay in a sideways range over the last few weeks. Support should be at last week’s lows 1190 with resistance near 1240.

Sources in South America are projecting Brazil’s bean crop at 75.5 million tonnes. That is up from their previous estimate of 75.18 million tonnes. USDA still has Brazilian beans projected at 73.50 million tonnes. We are expecting to see USDA revise their estimates about 1.0 million tonnes higher on this next report. Beans have been under pressure because of domestic demand but also the idea that global ending stocks are increasing as well.

The charts still look weak but the questions I have been getting is, have we sold off enough? We are looking for carryout number on Wednesday at 185 million. That would suggest a January futures price of 1300. The futures are not trading 185 million. They are looking for ending stock to eventually rise to 200 million carryout. Now is the time that we typically see export shift back to the United States. Traders are waiting to see demand pick up before we feel charts will start to look better. The dollar and outside markets will always be a factor so continue to watch them for early direction…Steve Georgy

Wheat: Monday's trade felt like the quiet before the storm as the market marked time before Wednesday's USDA report. (Talks of a delay tied to MF Global issues appear to be just talk right now, but we will keep you updated if we hear anything concrete on this issue.)

Other news affecting the market besides the MF Global bankruptcy is the continued debt problems in Europe. Last week the trade was concerned about Greece and now they are pivoting their concerns to Italy. Italy’s debt problems are a much bigger issue than Greece’s as they are the third largest economy in the European Union. If its debt situation does not get under control soon, it will make Greece’s current problems look miniscule. With this in mind, the trade will be trading headlines as they come out of Europe.

If the report does not get delayed, hopefully we will get back to trading grain fundamentals. The average guess for wheat’s ending stocks is 819 million bushels. This is down from last month’s 837 million number and well below the 2010-11 carryout numbers of 861 million bushels. The government does not typically make major production adjustment on this report but we need to keep an eye out because they have made adjustments from time to time. Last year they lowered production 16 million bushels on this report.

As for the weather situation, it does look to be improving a bit as there is rain and snow in the forecast for the drought hit southern Plains over the next five days. This has allowed for the Minneapolis wheat to build a premium to the Kansas City wheat recently. With the spring wheat quality good it is holding its premium as good quality wheat is in high demand. The KC market has had some of its weather premium taken out of it as the moisture in the forecast will help get it established before it goes into dormancy. In other weather new their area reports out of the Ukraine that they could lose up to 30 percent of the 2012 crop due to drought. We do believe it may be a little early to right off that much of their crop but it is something that needs to be monitored.

Allendale looks for the wheat to continue to trade in the same sideways range it has been in the past few weeks. With comfortable supplies of wheat, in both the world and the United States, it is hard to be bullish unless weather problems extend through spring…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.

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. www.allendale-inc.com

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