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Tim Hannagan: Wet funds
We started the new year with our first weekly demand report, our weekly export inspections. This report is one we need to follow very closely, as it's a gauge of near-term demand for sales to be shipped one week to 30 days out.
Our Thursday weekly export sales report is also critical to follow as it tells us how much of each grain was purchased for long-term delivery of two-to six months out. Demand drives the market, so we need to track how much is shipped, to whom and when. Though total sales are what ultimately matters, we have key world buyer's to watch giving us the best chance to determine price trends off demand.
For wheat, we need Egypt and other Middle East buyers to give us the best wheat demand to drawdown ending stocks.
Corn and beans, it's China and surrounding Asian neighbors to reach demand sales big enough to see further ending stocks declining. Our weekly export inspection report Monday at 10 AM central time showed 10.3 million bushels of wheat was inspected by the USDA for near-term shipment, down from 19.8 the week prior and our four-week average of 19 million bushels. It's a weak number and could be an aberration due to year-end complications. But, it's a negative demand signal just the same. It didn't affect wheat Monday, as the new year began with most of the day up over $.20 on supply-side issues, when Australia over the week announced that not only will up to 50% of its current wheat harvest be only suitable for feed quality, but much of their wheat now may not even be harvested due to flooding.
Corn inspections were 15.6 million bushels versus 42.5 the week prior and four-week average of 29m.b. Beans too, saw a drop off to start the year at 20.1 million bushels inspected down from 30 the week prior and four-week average of 33.
Two issues could hold the near-term story for the market. One, we had our highest grain prices of the year for corn and beans and two, importers wait to see if heavier grain sales occur after January 1, as farmers delay sales to push tax liability into 2011.
Also, will trading funds begin selling to re- calibrate their portfolios? Last year, funds began selling after the January USDA crop report and the year prior began selling January 2. Both years saw selling lows into early February. This year, there's a wildcard in the January 12 USDA crop report. Most of the trade will fear a bullish report , so this week's low will occur, then short covering and buying prior to the report due for release next Wednesday.
Tuesday saw funds selling everything from energies, softs, metals, meats and grains. If it continues corn could lose another $.60 and beans a 1.15. Weather also had its bearish claws in today's grain market. It appears rain looks to enter some of Argentina's driest areas. It's not clear as to how much rain will fall. Some say very little, others say much more rain into the 11-to-15 day outlook. If rains come to Argentina of 1 to 2 inches or more, over 75% coverage on three separate systems into the end of the month, we will remove the entire weather premium back to $5.44 and beans $12.10, basis March futures.
It still comes down to the day-to-day news for confirmation. On last Thursday's report, we gave March bean resistance at 14.00. We saw 14.00 on Friday and Monday. We had 13.95 as support and if broken would set up 13.75 then 13.50. We had a 13.57 low today. Support now is 13.50 then 13.25 our long-term trend line. Resistance is still 14.00 then 14.20.
We gave corn resistance this week at 6.26. We saw 6.30 and 6.33 highs Friday and Monday. We gave support at 6.02. Today's low was 6.03. A close under 6.03 sets up 5.94 then 5.74 as key support. Resistance now lies at 6.26.
Wheat resistance still remains at 8.10 even though they traded through it Monday but the key was wheat closed Monday at 8.04 so resistance held. We gave support at 7.60 which remains the same. You need a close above 8.10 to buy as a close over sets up 8.65 as next resistance.
Tim Hannagan, PFGBest.com senior grain analyst, serves as a weekly contributor to Agriculture.com.