February 2, 2012
By: Craig Haugaard, Grain Origination Manager
CORN: 6 lower
I continue to believe that we have two very distinct markets in corn, old crop and new crop. In looking at the old crop corn we continue to see concern over the South American drought and the belief that the rains that are now coming are too late to save the corn. With the size of the South American crop sure to come in below the latest USDA projections the assumption is that we will see increased export business come to our shares. This in turn would have the effect of dropping the carry-out number lower than the currently projected 846 million bushels. Since we already have one of the tightest carry-out to use ratios in history this further tightening would leave us with no room for error. This would also bring increased volatility with the market surging strongly on any hint of bullish news and then setting back if it failed to materialize. That leaves me bullish old crop corn and I think right now, with the technical indicators all bullish it is time to be patient.
Then we have the new crop situation. With an early spring and the economics favoring the planting of corn I think we may be shocked at how many acres end up being planted. For now let’s use the commonly accepted answer of 95 million acres. You take 95 million acres and experience the old saying of “plant in the dust and your bins will bust,” and where do you think prices will be at harvest time? Probably lower than a snakes belly in a wagon rut. Having said that I believe that there is enough fear and uncertainty to give us some additional up-move from these levels but when I do get the technical sell signal I am going to take it because if we have a trend line yield crop I don’t think we can gin up enough business in the world to keep the prices from doing a swan dive off the cliff.
Technically, all of my indicators are bullish and in looking at the December futures, the next level of resistance comes into play at $5.78 while in the March futures I am looking at $6.65.
SOYBEANS: 8 lower
The bean market shrugged off favorable weather reports to surge nicely higher during the session yesterday. We did see some beans trade to China yesterday which was supportive as well. Speaking of China an announcement came out yesterday that they were adding another 12 MMT of soybean crushing capacity in that nation. Since they have a lot of unused capacity at the present time the timing of that story seemed a little strange but may speak to the long term potential they see in their nation. Yesterday we spent a fair amount of space talking about the continued reduction in the size of the crop that the private analysts are seeing compared to the current USDA numbers. Informa is going to join that fray tomorrow when they release their world crop estimates. For now the assumption continues to be that the South American crop will continue to get smaller and that is bullish for prices.
Yesterday’s action was enough to turn all three of my indicators bullish for the November futures while in the March futures two of the three are bullish at the present time. The next resistance point in the November futures should come in at $12.32.
WHEAT:HRW 7 lower HRS 3 lower
If I was long a lot of wheat right now I would be as nervous as Jesse Jackson at a Klan rally. We seem to have built really rotten European weather into the price structure and with the technical indicators starting to turn I think we may soon once again get to the place where the path of least resistance is lower. Toss in the fact that we may be looking at a 2012/13 carry-out in excess of a billion bushels and one could make the case that wheat will probably trade much lower in the coming months.
I would be the first one to tell you that when I try to get ahead of my technical indicators and make a sale before they actually cross I usually get taken to the wood shed by the market. Having said that please take a look at the following Kansas City September futures chart with special attention paid to the stochastics (center piece of the chart) and tell me if it looks a little oversold to you.
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.