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Triple price bottoms rarely hold
Corn tested recent lows yesterday, but bounced nicely from those lows to close 12 cents higher on the day. The only trouble is we are dealing with what looks now like a triple bottom. As we mentioned a few weeks ago, triple bottoms rarely hold. While it's likely we will bounce some from these recent lows, the market could have trouble holding those support levels.
The problem with the market fundamentals, as we have stated all fall, is not with the US supply/demand situation, as the US produced below average crops of wheat, corn (-9% from 'trend'), and soybeans (-5% from 'trend'). Instead, it's the world production numbers that continue to be revised higher that is holding prices back from any type of rally. In the recent week, news that China had larger corn and feed grain crops than expected along with Canada's announcement of higher wheat production than expected added another set of bearish numbers to the world mix. This continues a trend of above average crops from Russia/Ukraine/Kazakhstan to Australia, and that has put a damper on price improvements since August.
Corn prices have dropped back into the $5.70-$5.80 support levels on Dec corn, with March trading about 10c higher. Corn also has lost its premium to CBOT wheat, with SRW now fetching a slight premium per bushel finally (but still priced less per lb). It was amazing that wheat prices were at a discount to corn for so long, as that provides strong incentive to add wheat to the feed ration for many animals. It's likely that was accomplished in many areas, especially areas of the world closer to feed wheat supplies than corn supplies. Pro Ag notes that corn exports have slipped off a cliff recently, with slowing of exports reflecting the fact that corn is perhaps the highest priced feedgrain in the world.
Wheat demand also has waned in recent weeks for exports, probably reflecting the increased world competition coming from the rest of the world for the export share. The Black Sea region has been especially strong in its export program, and that is leaving wheat exports in the US at slow levels thus far this year. That also represents a drag on prices, and keeps the market slow.
Soybean prices are now following the weather woes of South America (SAM), and so far SAM weather has been mostly good (in fact, excellent through most of planting.). Many private forecasters have raised SAM production prospects already (as has USDA), although some dry areas are developing in northern Argentina this week. However, the 8-14 day forecast puts rain back into that region again. So, if accurate, that rain would alleviate what little drought problems have emerged thus far. Overall, SAM production prospects look better than average, at this stage of the game.
So, grain prices continue to sag lower, with spurts higher followed by pushes lower. But, the price-trend remains down. We are coming to some major support areas now. If they fail there is a lack of strong support levels below the market for quite a ways down. Let's hope prices don't break below these major support areas, or it could be a another quick retreat for the grain markets.
All of this price weakness is especially distressing, as the crude oil market has pushed back above $100/barrel in recent days. Meanwhile, grain prices are sagging. Pro Ag notes that Time magazine wrote in recent editions about how Republican candidates no longer support ethanol subsidies - even while campaigning in IA before the important primary there. Republican candidates are calling for ethanol subsidies to end this month, with cries not to renew them. That could spell more trouble for the corn market, and also the ethanol industry in the US. That's too bad, as we finally have a viable alternative to foreign oil, and just when it gets going good, we put another dagger into the industry.
The information contained, while not guaranteed as to accuracy or completeness, has been obtained from sources we believe to be reliable.
The opinions and recommendations contained are based on our judgment and do not guarantee that profits will be achieved or that losses will not be incurred. Recommendations should not be construed as an offer to buy or sell commodities. There is substantial risk of loss in trading futures and options on futures.
Written by Ray Grabanski.