September 23, 2011
By: Craig Haugaard, Grain Origination Manager

On April 26 of this year I ran the CRB index chart showing you that we had experienced a full 61.8% Fibonacci retracement of the last down move and suggesting that we needed to keep the market moving through that level to avoid an overall commodity selloff.  We revisited that again on May 6 but I don’t think I have talked about the CRB index much since then in spite of a general drift lower in many of the commodities that it tracks.  With yesterday’s broad commodity selloff and the palpable fear that we may be entering another recession/depression of a world wide scope it is probably time to revisit the CRB index once again.  As you can see on the following chart, we closed yesterday right up against the 38.2% Fibonacci support lines.  A decisive close below that level could very well trigger a broad commodity landslide to the downside which may take corn; bean and wheat prices significantly lower in spite of each commodities individual fundamentals.  This column is read by several thousand people each day and I know that each of you is unique in where you are with your marketing plans but if you have every little sold so far at the very least I would ask that you feel nervous about it.

CORN: 7 lower

The statement heard round the world was, “There are significant downside risks to the economic outlook, including strains in the global financial markets.”  This statement, which came out of the Fed yesterday, is being given credit for causing the world wide panic yesterday that sent global markets plunging lower.  As you well know, there have been ongoing fears over a double dip recession in the USA and great concern over the economic future of the EU and this statement seemed to push those fears into action.  It didn’t help that a report released yesterday showed the economies of the EU and China slowing down.  In an odd turn of events traders liquidated stocks and commodities and the dollar was suddenly seen as a bastion of safety.  With the dollar surging sharply higher that put increased pressure on the USA commodity markets.  As we have often discussed and as you can see on the following chart there is an inverse relationship between commodities and the dollar.  On the following chart you will see that as the dollar (black line) drops the price of corn (red line) tends to increase and vice versa.  If we are entering a period of a strengthening dollar it would tend to be negative for commodity prices.  The fundamental news that was talked about yesterday seemed to be along the lines of better than expected yields and the potential for the record feeding of wheat which would reduce corn demand.  Technically, all three of my technical indicators are firmly in the bear camp.  We had a Fibonacci support area at $6.53 which we closed slightly below yesterday.  In my mind that is a key area and if we continue to slide from this level rather than experiencing a rebound the next level at which we may be able to conjure up some support is $6.20.

SOYBEANS: 21 lower

In addition to the pressure brought to bear by the abysmal outside markets we are also seeing some private analysts now projecting that the USDA will increase the yield in their October report.  At some point in the next few months we will hopefully work through all of this outside market influence and get back to trading the specific commodities fundamentals.  In soybeans the long term story may be that right now the corn/bean ratios favor planting corn and thus we may see an acre buying rally at some point next winter.  The technical indicators are all bearish.  As you can see on the following chart, in the overnight trade we broke through an area that has provided support.  The Fibonacci numbers would tell me that the next target in the November beans is at $12.15.

WHEAT: HRS 6 higher     HRW 2 higher

In addition to all the outside market stuff the wheat market is struggling under the burden of increasing world supplies.  As folks look at acres for next year the general consensus yesterday seemed to be that since the winter wheat crop insurance price was set prior to this selloff we may very well see good winter wheat planting again this fall. That thought process would seem to fly in the slow planting pace that we see in HRW country which seems to be related to the ongoing drought.  The story line has been that the drought may very well result in less planted acres but that was not the song book that traders were singing out of yesterday.  In other news, Egypt bought cheap Black Sea wheat from Russia yesterday as we continue to be uncompetitive in the export market.  I think that longer term we may very well see the fundamentals of this market become more bullish but for the time being that is not the case.  Technically, all of my signals are bearish and I don’t see any support in the December Kansas City futures until $7.20 with the next level in December Minneapolis futures at $7.76.

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.