January 26, 2012
By: Craig Haugaard, Grain Origination Manager
CORN: Old crop 8 higher New Crop 5 higher
Regular readers of my ramblings will remember that in 2008 we had tortilla riots in Mexico as price of that staple increased sharply. Well, I don’t know if it means anything but I can report that tortilla prices in Mexico are now at all time highs. It is too early to tell if this will lead to another round of rioting or not. In 2008 this also led to a great deal of hand ringing and debate over the ethics of making fuel from grain when the world’s poor couldn’t afford to eat. Actually Jonathon Swift addressed this issue way back in 1729 when he suggested in his piece A Modest Proposal that the poor solve their food shortage by eating their children. Having said that I suspect that bringing that up in a UN debate over food shortages would be considered poor taste so don’t be surprised if the food vs. fuel thing gets re-visited at some point. Speaking of fuel we had crude oil a touch higher yesterday as those fun loving folks in Iran indicated that they may cut Europe off from oil. If they follow through on threats to shut down the Strait of Hormuz we would see a spike up in crude oil prices and I would imagine that corn would participate at some level as well. I would suspect that this would be a short lived spike but would offer great selling opportunities. With good export demand thus far, strong ethanol demand and the fear of an interruption of the flow of oil you can make a decent case that we could have some more upside in the near-by futures. I continue to believe that the new crop futures, assuming normal weather, could end up be about as attractive as a road kill skunk on the 4th of July. I believe that we will see the old crop new crop spread continue to favor the old crop much as it did in 1996. In that year, as you can see on the following chart, we had the July futures trade as much as $1.87 over the December futures. I still believe that we could see harvest time cash corn prices start with a 3 this fall and thus am personally looking to price new crop corn on rallies.
From a technical perspective this recent move up has now turned all three of my indicators bullish for both old and new crop. Yesterday I told you that I thought we would see resistance in this market at $6.37 basis the March futures. That proved to be a tough area once again yesterday. We finally traded strongly through it last night and if If we can close above that level the next resistance level comes into play at roughly $6.65.
SOYBEANS: 9 higher
Yesterday it appeared as if more rain was going to show up in South America and that forecast had beans lower for the session. The conventional wisdom is that it is too late to help the corn but that the beans will benefit from the recent rains. This morning the forecast doesn't have as much rain in it and thus up we go. Regardless of what the forecast shows us don’t look for the market to break very hard as traders have memories like elephants and still recall that in 2009 after the January USDA report they ended up reducing the size of the South American crop by an additional 18 MMT before it was all said and done.
All three of three indicators are bullish in both the old and new crop futures months. Look for next resistance point in the November bean futures at $12.32.
WHEAT: 6 higher
Ukraine still is struggling with their winter wheat crop and now estimate the size of the crop to be 5.5 MMT, down from the 7 MMT that the USDA has been projecting. That news coupled with the recent increase in prices out of the Black Sea has made USA wheat competitive in the world market once again. A few weeks ago I mentioned that I thought the best thing that the wheat market had going for it was the fact that the funds were net short the Chicago futures. They still are short; in fact as we kick things off this morning they are short 46,000 contracts after having bought back roughly 20,000 contracts during the past four trading sessions. This has helped to spur prices higher and I am of the opinion that we have not seen the end of fund buying.
Technically two of my three indicators are now bullish for both old and new crop Minneapolis wheat while all three are bullish the Kansas City winter wheat.
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.