November 22, 2011
By: Craig Haugaard, Grain Origination Manager
I am beginning to wonder if I am a paranoid freak or a genius. The reason that I say that is that I just can’t get too excited about the grain fundamentals and getting a little obsessed with the outside markets. The little religion of peace nut ball running Iran scares the living the snot out of me. The economy in Europe seems like it is being held together with duct tape while here in the USA we seem like we are trying to run off the cliff as fast as we can. While all this is swirling about the politicians of the world all seem to have their heads firmly up their fourth point of contact. (If you don’t understand that have a soldier who has been through airborne training explain it to you.) The question we need to be asking is if we are heading for a worldwide slow down or worse. Today I am running the monthly CRB index chart which shows us that we better be getting good overall support of commodities at the current level or we risk moving into a retracement that would take us back to levels last seen on the CRB index in June of 2010. As a reminder at that point we had spot corn futures hovering around $3.50. Since we all know how important the outside markets are, tomorrow I will run the monthly S&P chart for your viewing pleasure.
The weekly export number was a decent 37 million; actually a little better than the number we posted for this week a year ago. Cumulative export loadings for the year are down16% with the USDA projecting that we will end up 13% lower than last year when the last dog is hung. (That is a pretty weird saying and apparently goes back to King Henry VII. At the conclusion of the War of the Roses, Henry VII pitted a pack of dogs against a lion to demonstrate what would happen to traitors in his kingdom. The lion lost--which is not what Henry expected. To make his muddled point clear, Henry had every dog hung--and made his nobles watch till the last of them was hung. Now back to the markets…) At this stage of the game it may be tough to hit the USDA projection because of the cheap feed wheat and feed grains being offered in the export market. Ukraine continues to have a Kmart blue light special on both corn and feed wheat while Australia is now weighing in with cheap feed wheat offerings of their very own.
While exports may struggle to hit the USDA projections, the demand from ethanol continues to run well ahead of USDA projections. There is also a thought that the January 9 report could show us greater usage in animal feeding than the USDA has factored in. The net result is that if we were to trade old crop corn based on its fundamentals you could come up with a bullish story. On the flip side the new crop 2012 looks sick. We will get our first glimpse into the mind of the USDA in the February Ag Forum meeting but the smart money right now is betting that we will see acreage projected to be up about 3 million acres and that they will use a trend line yield of 163 bu/acre. With that scenario you will see the stocks increasing and could make a case for trading the December 12 futures under $5.00.
Technically, I have nothing good to tell you. All three of my technical indicators remain bearish. Looking at the March futures chart, our old buddy Fibonacci would suggest that we should pick up some support at $5.86 with additional support at $5.51 basis the March futures. In looking at the weekly charts I see that we have taken out the support at $6.05. I would look for the next support at $5.45 and if that falls $4.85. Don’t bet against seeing $4.85 in the next 12 months if we have normal weather.
SOYBEANS: 1 higher
The soybean market dropped fast than this guy yesterday as the funds sold off 4,000 contracts. When it comes to soybeans China still holds the key. Now, I am not going to pretend to be an expert on China but I did eat some La Choy Beef Chow Mein for supper last night so I am clearly tuned in to all things Chinese. The indicators that we are seeing come out of that nation are a little concerning. Vegetable oil demand seems to be slowing and at the same time the soybean crush margins in China are showing a negative dollar per bushel. From a larger economic perspective folks are noting that housing prices are beginning to fall. Is this the beginning of a collapse of a housing bubble in China? If so the implications of a slowing Chinese economy are probably not positive for soybean prices. The other factor that we are fighting right now is the fact that at the present moment we have 8 MMT more soybeans in South American than we did 365 days ago. Those will in all likelihood work into the export market ahead of USA beans and thus look for our export numbers to continue to lag for the next month or two.
All of my technical indicators are currently bearish and if we apply the Fibonacci numbers to the January futures chart it appears as if we have some support at $11.17. Ultimately a drop to $11.09 ½ would fill the gap left back on October 8, 2010.
WHEAT: HRS 2 lower HRW 2 higher
I have absolutely nothing new to talk about here. Egypt was in looking for wheat and as you would expect ended up buying cheap wheat from Russia, Ukraine and Kazakhstan. We continue to lose to cheap foreign wheat and as a result last week’s exports came in at 11.5 MMT which is exactly half of what they were for this week a year ago. It looks like the HRW country may pick up a little more moisture which is not supportive to winter wheat prices. The only real positive that I can see on the horizon is that when the funds realign the conventional wisdom is that they will have to buy wheat futures. That could bring in some support in late December and early January. Other than that I would look for wheat to continue to follow corn lower.
In the world of technical indicators all three of my indicators are bearish both Minneapolis futures and Kansas City futures. What I do find interesting is that, as you can see on the following Kansas City continuation chart, we are right up against solid support on the weekly chart. This level needs to hold or this could get real ugly.
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.