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Technical confusion

Ray Grabanski 12/22/2011 @ 9:14am President, Progressive Ag www.progressiveag.com

After penetrating through recent lows last week, grains have had a nice run higher this week, starting with large gains Monday for corn that have had follow through strength through the middle of the week. Now grains have bounced back above those lows, and in some cases put in positive technical signals. For example, Mnpls wheat formed an upside reversal on Monday that looks pretty impressive on daily charts. The key this week will be how we close, not how we started the week. 

With some other commodities showing weakness recently, it looks as if the markets are showing some potential weakness, though, in the near term. Gold, silver, cotton, and crude oil have shown flashes of downtrends recently, and that is in contrast to what grains have attempted to do this week thus far. Is this just a fake out by the grains?

South American weather is having some influence on grains, pushing them higher this week thus far as some areas of southern Brazil and northern Argentina are suffering from dry conditions in the past few weeks. However, the forecast is for wetter conditions in the coming week, followed by moderate temps and precip in day 8-14 as well. Temps are not threatening, but the market is starting to develop some premium for the potential for drought problems in South America. Perhaps that explains the recent surge in grain prices?

Yet, we are far from a crop failure in SAM! Its hard to generate a lot of enthusiasm for a drought when temperatures have average below normal for the majority of SAM - both Brazil and Argentina - since the planting season has begun. Sure, there has been below average precip the past few weeks, and sure, it is starting to become a key vegetative growth period for the crop. But it is still plenty early to be concerned about drought damaged crops in SAM. The market is just going to have to be patient for now.

In the meantime, US HRW wheat production regions have been getting great precip again in the most recent week, with a storm dropping heavy snow in some regions of OK, KS, and the TX panhandle. This will greatly improve the soil moisture in these areas, especially the far western areas that were in dire need of precip. The market so far this week has actually risen for wheat in sympathy with corn, but its likely that crop conditions will improve for areas that received over half inch of rain, and that includes about 85% of the HRW wheat belt the past week. That hasn't seemed to have had much influence on markets. But perhaps we just haven't had enough time yet?

"Patience is a virtue," I keep telling my 8 year old son, Bryce, as he continually asks me if he can open his Christmas presents early! And perhaps in determining the technical price direction of the market - patience is a virtue there as well.  And for now, the trend remains down, and until a new direction emerges, perhaps the best thing to do is be patient, and wait for a more definite price direction to emerge from the market.  

For now, Christmas is upon us, a time to celebrate the birth of Christ. May you all have a Merry Christmas, and a blessed and Happy New Year as well!

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