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Lower markets ahead, analyst says

The market continues to come under the influence of market pressure, with soybeans and corn leading the way down earlier, but wheat recently displaying more weakness than the other commodities.  

Soybeans are highly sensitive to the South American weather patterns right now, as this week is essentially the same as the fourth of July week for US producers (at the peak of weather premiums).  So, there can be expected a lot of volatility due to the weather forecasts and any subtle change in the forecast.  

For now, though, the weather forecast looks pretty benign for the SAM producer.  Northern Brazil, along eastern areas, has developed some dryness over the past few weeks is forecast to get wetter over the coming 14 days - a just in time weather event if that occurs.  That could heal up some of the drought concerns that have been added to soybean premium over the past few weeks.   

The US averted the 'fiscal cliff' by passing legislation that raised taxes and delayed the budget cuts another two months, yesterday.  That, effectively, gave a huge boost to stock markets and weakness to the dollar this morning, giving grains a boost to start.  But soon after the market opened, the improving South American weather exerted pressure and soon we had soybeans trading to the downside.  

While SAM producers are advancing towards harvest of what could be a pretty good crop, prices have been drifting lower on slow export demand from the world's buyers.  That is especially prevalent in the corn market, where exports have been anemic all year, so far.  

In fact, soybean exports have exceeded corn and wheat added together the past few months, and that is indicative of the strong soybean demand, but the light corn and wheat demand.  Wheat demand is mediocre, but corn demand is pathetically bad on the export side.  This leaves one to wonder about how strong domestic demand is?

March corn futures have now dropped below the support levels around $7-$7.10, and now is trading below the magical $7 level.  This opens up corn to more downside weakness as well, as downtrends are firmly established in the corn market.  

Jan soybeans are still hanging onto support levels just below $14, but recent weakness has the soybean market challenging those recent lows as well.  Soybeans will be more sensitive to weather developments in SAM, as they are such a big producer of soybeans relative to other commodities.  

Wheat futures have been perhaps the most disappointing recently, with prices dropping from around $8.50 support levels around Dec. 10, and then quickly sliding to $7.645 on Dec. 27 before a small recovery.  The downtrend, however, is now firmly established in wheat, too, joining corn as the weakest markets technically of the big 3 grains (corn, wheat, and soybeans).  There is a support levels around 7.50, and Chicago wheat should not drop much more without dragging corn along with it.  After all, wheat prices are basically priced as a feed grain (60 lbs. vs. 56 lbs. for a bushel of corn).  

The negative technical scenario, combined with expectations that high prices are curing high prices (allocating short crops among reluctant users), have both technicals and fundamentals pointing lower right now.  

Unless South American weather quickly develops into a problem, normal production or better out of South America combined with the negative picture technically and fundamentally should point to lower prices ahead.  Not the way we want to start off a new year, but I guess we can't always have good news!  

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