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Tim Hannagan: Markets eye China, South America weather
It's been a typical pre-holiday week with just one twist in the market. We saw continuation of long liquidation in the market. This has been a trend, as index funds continue to reduce the size of their massive long positions since the November 9 crop report.
December corn hit a new low on Tuesday at 506, just under the major support we gave you at 510. On Tuesday, it closed at 528 because 510 was major support for those who built up short positions to cover ahead of the Thanksgiving holiday.
January soybeans hit lows last week of 1175. This week, it dropped to 1190 on Monday and 1201 on Tuesday, before rallying on short covering ahead of this holiday closing. So, we sit here Wednesday, pretty much with everybody having their books balanced. The ‘long's’ did their liquidation and the shorts their liquidation. Wednesday, we had a little bit of a surprise with China purchasing 780,000 metric tons of soybeans for future shipments. This had beans opened 15 higher and corn eight higher with wheat in tow.
This certainly brings on some thoughts to traders. The two prior weeks saw China almost cut their purchases in half as rains returned to South America, helping soybean and corn planting in early emergence there. The three weeks prior to that, when it was very dry in South America and talk of La Niña drought, China was in the market overbooking beans as insurance in case it continued. This week the 6 to 10 day weather forecasts has drier than normal conditions in Argentina and southern Brazil.
Now, one wet week does not make the crop, one dry week break a crop. But it's very clear to the trade that China is accelerating or decreasing its purchases based on new weather forecasts. Should we come in after the holiday next Monday when the new 6 to 10 day South American forecasts come out and they continue the dryness in Argentina and southern Brazil or even expanded into central and northern Brazil, we should expect traders to begin to buy the beans building in a concern and the weather premiums over the weather. Should we come in Monday and there is rain in the forecast returning, look for prices to break. So weather in Argentina and Brazil is still going to be the wildcard for rallies and breaks through February when the crops are done growing.
December corn has resistance at 544 for a double top. Support on Friday when we return after the holiday is 526 and Monday, next week, 528. A close under support and 4.88 is next stop. It's 4.88 that will be seen if the rains returned to South America.
January soybeans have resistance today, Wednesday at 12.54 then Friday and Monday 580. Support is at a minor trend line at 1210 on Friday and Monday. A close under 510 and 1160 is next support. It's this 1160 area that will be hit If rains returned to South America. Of course, a continuation of crop threatening weather could easily have us take out the 1350 highs of the year. Just a note, markets close early on Friday at 12 central time.
Tim Hannagan is a senior grain analyst with PFGBest.com.