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Tim Hannagan: A continued unwinding
Some strange and some not so strange price action occurred since Tuesday.
Wednesday and Thursday saw corn and wheat continue their post USDA crop report profit-taking correction with a Wednesday low on corn of 565 and Thursday low of 557 and wheat low Wednesday at 695 and Thursday 7.016. By Thursday's low corn had pulled $.51 off our Tuesday report day high and wheat $.65 off report day highs.
But, beans roamed a little different. After falling $.35 from the Tuesday report high opening, January beans opened five higher Thursday rallied to a $.19 gain on the day, while corn and wheat closed lower.
With all government offices closed Thursday and no news sources to move markets a private crop forecasting group took advantage of an opportunity to draw attention to themselves by publishing a 2011 crop planting reports suggesting farmers will plant 2m.a., less beans in 2011. Of course, this was the only hat tossed in the ring to trade so idle traders, anxious for any piece of news to jump on, bought beans and of course they sold corn as the common assumption is if you plant less beans, you will plant more corn on those acres.
It's far too early to predict what farmers will plant. If you talk to 1000 farmers from Ohio to California. They would say, I will take 75% of my land and rotate crops. Meaning, what fields they plant corn on they will plant beans and vice versa. The other 25% they will plant whatever crop brings the highest profit. When you ask a farmer what's his most valuable crop he says his land is.
If you take care of the land it takes care of you. This is why farmers adhere to such a strict policy of crop rotation. The chemicals and fertilizers used to plant corn are so strong that if you used consecutive years and not allowed to be flushed away by spring rains and aeration. It would burn the soil for the next crop. Soybeans planted the next year allows the soil to rebuild. Farmers won't decide what to plant until February into March,when finances and costs are determined by the early deep discounts offered by seed and fertilizer salesman.
They will all be battling to get growers to buy their new bio-genetic seeds and not the others with guarantees you can plant it on your head, wear a hat and get record yields. Here's what's certain. They plant more corn and beans acres and not less of one or the other. Growers will plant only what the world wants to eat. The acres lost will come from hayfields, cotton and oats which no longer is exported.
Friday saw our weekly export sales report come out. It put wheat exports last week at 832 t.m.t up 47% from the week prior thanks to Japan and Mexico, but the key world buyer needed, Egypt, canceled 7t.m.t. Though a small amount it's a huge signal. Egypt is the world's number one monthly importer of wheat. Since the Russian wheat export ban, the US has benefited and become number one port to buy wheat. This suggests the two prior months of aggressive Egyptian buying of US wheat may take a pause.
It does appear importers have gone back to buying hand-to-mouth as needed, with the US and world wheat stocks so large.
Corn exports soft again at 573 t.m.t. up 20.4% from the week prior and 9% over our soft four-week average. Though up on the week, we need one million metric tons or more weekly to signal a return by importers to corn.
Bean exports were 809 t.m.t down 49% from the week prior and 52% under our strong four-week average. China was in for 620 t.m.t. versus the three prior weeks of 927 t.m.t. 1.369 m.m.t. and 1.451m.m.t. These were sales for future shipments. Beans shipped and underway were 1.965 m.m.t. with China taking 1.579 of the total. Read between the lines. Of course China will continue to be a major world buyer of beans and other high protein crops to ensure their mandate four years ago for a more protein rich diet for its expanding populace.
But, the last month as I noted on my twice weekly reports, they were overbooking on dry planting weather in number two world bean producer exporter Brazil. The two week slowdown came as rains came to Brazil allowing planting to continue and early emergence to improve. Should drought conditions returned, so will China as a aggressive US being buyer. Should crops progress in South America normally, we should see weekly sales average between 550 t.m.t. to 900 t.m.t.
Okay, how's our big trade doing after the report Tuesday. We took a bold position on last Friday's report to explain why we you needed to take our long positions held into the report off when the market opened Tuesday after the USDA crop report and immediately go short and buy on the money puts and sell 70 sent out of the money puts on corn beans and wheat.
Though a scary thought to many, our analysis of funds long positions held and profits held and the psychology of this report being the last bullish report of the year, would have trend following, index and stock funds selling long's and adjusting their risk while paying handsome bonuses on profits taken.
As a noted, funds are 90% technical. They don't know a bushel of corn from a phone booth and don't care. It's a profit-taking business to them. They use their massive monies to move the market and create profit, then take profit.
So, for today, Friday midsession, corn is $.50 off its Tuesday opening high. Next support is 542 basis December a close under and 528 is next and a reasonable objective. We have to close over 588 to turn technically bullish. January beans today midsession were $.77 off Tuesday's opening high. A close over 1330 is needed turn up yet a close under 1285 sets up 1230 as next trend line support. December wheat today is $.75 off Tuesday's opening high. 660 then 645 as next support. A close over 715 is needed to turn chart bullish again.
Unless something enters the market next week or the week after we should expect the market to see the low end of our chart expectations. Long-term, into next year, we're setting up a very bullish supply demand situation so we haven't gone bearish. But weekly traders need to know where near-term tops and bottoms are and why.