Corn: Once again, the corn was short on news as it prepares for the February crop report. Analysts’ average estimate calls for a carryout reduction of 55 million bushels down to 791. This might be a little extreme estimate for the February report, which is known for not changing carryout by large amounts.
If trade is correct with the estimate of 791 million bushel carryout, that would translate to a March fair value price of $6.61. It would not be surprising for trade to rally this corn going into the report even though this same process was obviously less than successful in January.
There would certainly be no surprise to see a slight increase of exports due to the recent strong sales. More potential increase in demand will be expected from ethanol. After the blender’s tax credit was removed, expectations were for a quick fall off of ethanol production. While that production has slowed, it is certainly not drastic and well ahead of last year. This shows that there are reasons to justify such a drop in carryout but expecting it to all come off during the February report might be a little aggressive.
Bulls might try to rally this market again going into the report up above 650. Bears will likely stand aside until seeing the report numbers or could consider selling ahead of the report looking for a repeat of January. While the Jan report was looking for either a 20 cent rally or a 40 cent break going in, any bounces this time around to 650 would look at a possible 10 cent rally or 20 cent break…Ryan Ettner
Soybeans: Beans had a wild start to the week but finished only a 1/2 cent higher on the session. Most of the talk was about South America’s crop estimates. Most of the research firms have reduced their production estimates and we are looking for a decline as well. Though it would represent a shortfall in production for S.A., and potentially lower exports, the trade is not sure if that will mean higher US exports. At these current levels we were not going to meet USDA’s January export estimates. With this reduction, at the best, we have a chance meet their Jan estimate.
We are concerned that the market is rallying on technical and could be lacking fundamental support at these levels. The March contract hit the January highs today and failed to break out. There will be good resistance at 1244 and 1244 3/4. If the trade manages to take that out the charts will continue to look good and could see a run near the October peak of 1290.
Fundamentals suggest that we are still overpriced and could see a break back below 1200 and could get near the 1175 level again. Money flow is very important to watch and Thursday could get traders excited again…Steve Georgy
Wheat: The wheat market managed a decent close today as all three exchanges rallied into the final minutes of the pit close. The market is finding continued strength on bitter cold that has engulfed much of Europe. The cold snap has the trade concerned about the potential for winter kill. With the temps they are seeing, there is a good chance damage is being done. We will not know the extent until this spring when the crop comes out of dormancy.
Additional support for today’s trade was the trade reaction to Friday’s Commitment of Traders report. The report showed that funds have reduced their large short position. As the fear of production problems in Europe became magnified, the funds reduced their short position exposure.
As for the U.S. crop, it received a much needed boost of moisture for this past weekend’s weather event. Most of the wheat belt received either rain or snow. Today’s export inspections came in a disappointing 14.505 million bushels. We were looking for the number to fall between 16 and 20 million bushels.
The next big market mover should be Thursday’s USDA supply demand report. A Reuters poll showed the trade is expecting ending stocks to come in at 867 million bushels. This would be down 3 million bushels from the January estimate of 870 million bushels. The average estimate for the world ending stocks was 208.963 million tonnes. This is down from their January estimate of 210.020 million tonnes. We would anticipate a choppy sideways trade the next few days a traders position themselves for the report…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.