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A pause in the recent break?

Ray Grabanski 12/01/2011 @ 7:54am President, Progressive Ag www.progressiveag.com

Grain prices dropped sharply until finding support from $5.70-$5.80 in Dec corn, and relative support areas in other grains (wheat and soybeans). Corn now has formed what looks like a triple bottom, a technical formation that typically is just a pause in an otherwise bearish technical formation. The first test of such a support level normally amounts to a bounce in prices, and so far this week that is what we have. But after the bounce, we might be right back to challenging these support levels in early December.

Soybeans, of course, have a much more negative technical formation, with new recent lows made in the past week that mean support levels now are at price areas considerably lower than recent trade. Wheat also dropped to new recent lows the past week, but quickly bounced up from those levels this week thus far. While corn hasn't broken through the summer lows, both wheat and soybeans have already accomplished this task, and unfortunately these two commodities are not likely to drop much further without dragging corn with it.  

Wheat has an interesting situation fundamentally as well, with the last crop condition rating of the year showing another increase in conditions to 52% G/E, up 2% from last week and still RISING as we entered freeze up (rather than the declines which typically take place this time of year). The crop has been improving due to recent rains, especially in the eastern HRW wheat belt where rains have been frequent since late October. That has resulted in improving crop conditions as we entered freeze up.  

The western HRW wheat country is still struggling, though, and is in drastic need of additional moisture. However, the next 7 day forecast continues to call for more rain for HRW wheat country - including the parched western HRW wheat country. That could result in further improvement in crop conditions. The central and eastern corn belt has had frequent rains as well, and that is leading to good conditions in the SRW wheat region as well.  

Of great interest to soybean growers has been South American (SAM) weather conditions, and so far they have been nothing but outstanding. That is leading to increased production forecasts for the SAM crop, and of course that isn't helping matters for the world's soybean growers. Anticipated hikes in production numbers are leading to lower soybean prices.  

Overall, this doesn't make for a positive outlook price wise, but then again when everyone turns bearish, that's when prices can be surprised by a spike higher, too. Recently, the outside markets are showing some improvement, with the stock market so far this week showing strong improvement in prices. Typically that means support for commodity levels of all kinds, and grains can certainly be supported from this equity price strength as well.  

So while the downtrend has been well established in the recent weeks, we are taking a little pause now from recent price weakness, and its nice to see some gains in grains again after the recent price weakness. But can they keep up the recent price strength? That's a question that will only be answered with time.

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