January 17, 2012
By: Craig Haugaard, Grain Origination Manager
CORN: 8 higher
Coming off of a three day week-end it is always a little dicey to try and determine which way the market is going to go but I suspect we now have the USDA report of Jan. 12 fully priced into the market and thus will be free to focus on stuff like the latest South American weather report. The other factor at play may be the economic situation in Europe and the impact it could have on our economy. After the markets closed on Friday we had a downgrade of the credit rating for a number of European nations. As we move forward I think the themes will be as follows:
1) Weather in South America and increasingly in the USA. The Iowa State climatologist is now saying we have a 40% of a La Nina event in the USA this summer. With the weather report for Argentina being mostly warm and dry this morning we should start off stronger.
2) The outside markets and other influences. Clearly the European credit downgrade could have an impact on our markets. The same can be said for the turmoil in the Middle East. Over the week-end we sent Gen. Martin Dempsey, the chairman of the U.S. Joint Chiefs of Staff to meet with the Israeli government as Iran continues to ratchet up tensions in that region of the world. If Iran actually does try to shut down the Straits of Hormuz crude oil would probably sky rocket in the short term and in all likelihood pull corn along with it.
3) Anticipation of the USDA Ag Forum. The trade will be focusing more attention on the numbers they expect to see come out of the Forum and frankly the numbers that I think we will see would give us a carry-out of around 1.7 billion. With the trade anticipating a bearish report I believe there will be a natural tendency to sell rallies in this market and we would probably be wise to do the same thing. I think the only thing that will keep us from having cash corn near $4 next fall will be a significant drought this summer.
4) The other piece of this puzzle will be the planted acres this spring. The last Informa number gave us a planted acres estimate of roughly 94.4 million acres. Other analysts are giving me numbers north of 95 million acres as the economics seem to clearly favor planting corn. If this indeed turns out to be the case we are probably going to look back at the December 2012 futures prices that we are seeing today and lament not selling more when we could have.
Technically, my indicators are all negative at the presen time.
SOYBEANS: 18 higher
On Friday beans had to deal with the continued fall-out of the USDA report and also got sucker punched by a weather report that came out around noon on Friday that showed increased chances of rain for both Brazil and Argentina. This week I would expect us to live and die once again with the weather reports coming out of South America although the outside market influences that we discussed up above will be at play in this market as well.
Based on past history the conventional wisdom is that we will see the USDA continue to reduce their estimated size of the South American crop until we get to a firm number in the April or May report. In the 2009 drought we saw the size of the crop in Argentina drop by 15.5 MMT from the original estimate to the final one so that fear may help support beans to some degree. I am hearing reports this morning that the Rio Grande do Sol region of Brazil is estimated to have already lost 15% of their bean crop.
Technically we did a lot of damage to the charts last week with all of my indicators now bearish. Looking at the March futures we have Fibonacci derived support at $11.58 and $11.05. In the November 2012 futures the next level of support comes in at $11.60.
WHEAT: 5 higher
We are going to have a carry-out this next year similar to what we had in 2009/10. That year the Chicago futures averaged a price of $5.08 for the year. At the close on Friday the spot Chicago futures price was $6.02 ¼. If we have the kind of corn crop that the trade is currently expecting and if we have the type of wheat picture that I believe the USDA Ag Forum is going to present us with then it would stand to reason that we could see wheat futures drop another dollar from these levels in the next year. The bottom line is that we have ample wheat supplies both domestically and worldwide and I fully expect that prices will continue to work lower assuming that we have “normal” weather. For the present time I expect wheat to continue to follow corn.
Technically all three of my indicators are bearish for both old and new crop in both the Minneapolis and Kansas City Exchanges.
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.