Corn: Over the weekend, trade was talking about the surprising number of 640 calls that were not exercised. With the March finishing at 640 on Friday, the big question is how many people would exercise those at-the-money calls to go long during the weekend? As it turns out, almost 3,500 contracts of calls were abandoned.
Had those people known over the weekend that beans would take out a key resistance area on Monday, they might have stayed with those calls. What this showed the market is that corn bulls might be eager buyers on dips, but when given the chance to buy anywhere close to resistance, interest is low.
Beans were the big bullish influence in corn Monday and despite a strong day in that market, May corn pressed up to resistance while December ended the day lower. This used up the last remaining free chart room for May to bounce while December seemed not to care at all.
Longer term, weather is still conducive for planting including some needed rain/snow in the upper Midwest starting Tuesday. Old crop traders can continue trading the recent range but need to move over into the May contract. New crop traders still look best to be active sellers on bounces…Ryan Ettner
Soybeans: Once again, beans closed higher and took out good chart resistance on Monday. May beans took out the 200-day moving average and closed above the October highs. Beans have rallied 10 out of the last 11 sessions. Funds bought an estimated 7,000 contracts. There has only been two sessions this month that funds have sold.
South America has been a primary reason for buying and still remains a concern. Now it is with exports. As we talked about last week, there is still talk of a potential strike from the truck drivers that move grain. This strike could start mid-March. Brazil is also having problems at their ports with a backlog of shipments that could be leading to cancellations and purchases coming here to the United States.
We have seen big bean sales over the last few weeks, but based on year-to-date sales, we are actually still behind the pace needed to meet USDA’s old crop export number. The recent strong pace will likely continue for another two weeks. That could fix the problem and even convince USDA to add 25 million bushels to its old crop estimate. Even if old crop exports are raised, and ending stocks are lowered from 275 to 250, old crop futures would still be vastly overvalued as our economic value would rise to only $12.25.
Taking 25 million bushels off USDA’s new crop ending stock number of 205 gets you 180. That would imply $13.00-$13.40 for a target for November futures. With this recent rally we were able to test the short side once again. This 1300 area may bring resistance but the charts and the momentum are still strong…Steve Georgy
Wheat: The wheat market closed higher on Monday on spillover strength from the soybean pit, causing a bout of profit taking.
The CFTC reported Friday that large speculators had raised their net short position to a near record of 59,580 contracts. This was an increase of 8,966 contracts from the previous report. That they were adding to short positions typically is not a bullish signal, but it might have been part of the reason the markets closed higher Monday. With the funds short this many contracts and the noncommercial and nonreportable traders combined holding a short position of 76,521 contracts, the market is filling a little too short. This makes the market vulnerable to short covering if technical resistive is taken out or something fundamental shakes up the market. Just the fear of a short-covering rally might have been enough to scare some shorts out of their positions.
The weather is being viewed bearish as the dry Northern Plains received snow over the weekend and one of the biggest storms of the season is predicted to come over the next few days. Export inspections on Monday came in at 9.375 million bushels. This was below the estimated range of 18 to 22 million bushels. The European Union has forecast their 2012-13 production to come in at 131.9 million tonnes. This is up 2.5% from last year’s crop. With a record supply of wheat in the world, it will take a dramatic production loss in the world to turn the balance sheet bullish.
We will caution getting overly bearish at this price levels With the near record short position the funds have we anticipate that we will see bouts of profit taking by them and that will cause the market to rally. It is this rally that hedgers should look to exploit…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.