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Market tug of war

Agriculture.com Staff 12/29/2009 @ 1:11pm

Grain markets seem to be playing tug of war, with corn prices pushing to the upper end of the recent range, while both wheat and soybeans pushed to new recent lows a week ago -- making these two markets look like an established downtrend. However, a pop higher on Monday's trade helped the structure of all grain markets. Now, if prices can push through resistance marks, both wheat and corn could run higher and turn the trend around (again).

It's amazing how much variation can be found, with not much change in the fundamentals of the marketplace. The only thing that has changed in the past week has been a significant winter storm that socked in what corn is left to be harvested. Snow accumulations reached up to the 1- to 2-foot area, with much of North and South Dakota getting 12 to 24 inches of snow. North Dakota has about 30% of the crop left to harvest (was 32% left last Monday in the last official report), so this state by far has the most amount of corn unharvested. South Dakota is second, with about 10% of corn left to be harvested (was 12% last Monday in the last official report).

The corn rally could be the real deal, as it does have some support in fundamentals with the snow that socked in corn likely for most of the winter now. Technicals also look more positive for corn, with new recent highs and a potential low that is above the most recent low. This is the salt of which trend changers are made! So perhaps corn can rise above its paltry export pace, and see some strength from the recent snow storm.

While corn has some positive tilts to it, the wheat and soybeans are not seeing as much strength on charts as the corn is. Wheat and soybeans pushed to new recent lows last week before bouncing back, and it makes these markets look like we are just experiencing a bounce in an otherwise bearish market. That's bad news for the wheat and soybean bulls, as there is more technical resistance for these two markets to overcome before we can turn the trend indicator back to "higher."

So we have a tug of war between the grain markets, with corn trying to push higher on the recent snowstorm - but resistance by wheat and soybeans as they seem more intent upon pushing into a downtrend. So which grain will win this tug of war? Will corn prices follow through higher, and drag wheat and soybeans with it? Or will the negative wheat and soybean markets drag the corn prices lower?

We are at a bit of a crossroads in grains right now, with the holiday trade providing some clues as to where we are going from here. Exports have been absolutely outstanding in soybeans! But corn and wheat exports are both disappointing to say the least. It looks like the anemic corn and wheat exports will trigger another reduction in USDA projected exports in January, so that could increase ending stocks projections in the January report. Soybeans might go the opposite direction.

South American production prospects haven't been mentioned much recently, but SAM so far has had good production prospects. Private forecasts of Brazil production include higher numbers than USDA's current estimate, so these numbers could go higher in future USDA reports. Bottom line is that the good SAM production prospects may be having more influence on soybean prices than the strong exports. China is a big buyer of U.S. beans, but once SAM soybeans are harvested they have an alternative outlet to purchase their soybeans from.

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