October 13, 2011
By: Craig Haugaard, Grain Origination Manager

CORN: 8 lower

After the limit up move of Tuesday, yesterdays action was kind of anticlimactic.  For that matter I suppose the USDA report fell into that category as well.  The acres were reduced about in line with expectations but with the sharply lower yield estimates that some private analysts were throwing out in the days prior to the report; the unchanged national average yield of 148.1 bu/acre had to be viewed as a bearish disappointment.  The biggest surprise that I saw coming out of the report was overseas.  For weeks now we have heard rumors of a reduced Chinese crop and the all but certain entry of China into the import market.  With China expected to be a significant importer of corn it was interesting to see the USDA actually fly in the face of conventional wisdom and increase their projection of the Chinese corn crop by 4 MMT over last month to a record crop of 182 MMT.  As you dig deeper into the Chinese situation you see that their demand has been growing by 7 MMT per year and there are some that believe with the increased demand for meat in that nation we will see annual growth jump up to the 10 MMT + range.  What this may leave us with in the coming days is a whole lot of nothing.  It may well be that given what we know about the market right now we are pretty close to an equilibrium price that we will chop around for a month or two and then see what kind of fireworks we can ignite when we start the competition for acres.  As I gaze into my crystal ball I see that all three of my technical indicators are bullish.  On Tuesday I noted that I thought we would see some resistance in the December futures at $6.52 so the chart nerd in me was very gratified when we hit that area and then backed down.  As we move forwards I would look for significant support in the December futures at $5.75 with solid resistance at $6.52.

SOYBEANS: 8 lower

Let’s take a long term look at this market. Forget about this 2011/12 stuff.  We have a 160 carryout, so that is tight.  Probably means that prices will stay very good and could go up.  Ho hum.  Now, what I think it cool to think about is 2012/13.  November 2012 soybeans are trading at 2.07 times the price of December 2012 corn futures.  That is really freakin tight and if it stays at that spread means we would expect people to try and plant corn over beans.  For the sake of this discussion let’s assume that is true and next spring the entire farming population of the USA only plants 73 million acres of soybeans.  Now let’s assume that we have the same yield we are projected to have this year.  Finally, let’s assume that instead of demand growing, it is unchanged from that projected for 2011/12.  Using that set of assumptions the balance sheet would look as follows:

Planted 73
Harvested 72
Yield  41.5
Production 2988
Imports 15
Carry-In 160
Total Available 3163
Total Use 3130
Carry-Out 33

That is why, to paraphrase Chris Matthews, I get a thrill going up my leg when I look at a November 2012 bean chart.  The excitement and intrigue just waiting to explode out of that bar chart could really be something to behold.  Well, that is all speculative dreams for down the road.  In the here and now all three of my technical indicators are now bullish.  If we assume that the recent lows in the November beans at $11.52 will hold we can then project a resistance level in the November beans at $12.72.  If I had beans yet to sell that would be the first price level that I would be looking at.

WHEAT: 4 lower

The story in the wheat market was that we have better than expected USA stocks and a world situation that is seeing the wheat stocks grow. That is the wrong combination of factors if you want the market to go higher and as a result wheat got rocked pretty hard yesterday.  At some point we may get back to trading the domestic HRW country drought but for now we are focused on the world supply picture and that will make significant rallies difficult to attain.  In looking at the charts all of my technical indicators are currently bullish but getting very close to moving back into the bearish territory.  In looking at the Minneapolis March 2012 chart I just threw in a couple lines that I suspect will define the trading range in the immediate future.  Unless we see something dramatic change here I would tend to sell against the top line on the following chart.

The information contained above was taken from sources which Wheat Growers believe to be reliable, but is not guaranteed by Wheat Growers as to accuracy or completeness and is made available for information purposes only.  There is a risk of loss when trading commodity futures and options.