Watching & waiting
The grain market is taking a wait and see approach, with the market teetering below resistance marks at the old highs in wheat, corn, and soybeans. That's the good news for bears, as the market has yet to push though the old resistance levels and it starting to look like it is having trouble moving through them.
However, the market has also been able to hold recent gains, hanging on on charts to recent gains on what could be a recovery in an otherwise bear market. But we are hanging on too long, helping charts to form a pendant or flag formation on charts, a bullish technical formation. For typically markets break out to the upside in pennant (wheat) or flag (corn and soybeans) formations, with the market usually making significant gains after this formation. That makes a strong case for the bulls, which seems particularly strong for wheat bull traders due to the long time that wheat has formed its pennant formation (since last summers highs on weekly charts). That suggests a breakout to the upside is possible, a unlikely development just a few weeks ago when corn, soybeans, and wheat all broke sharply following the Nov. 9 report.
While the technical formations suggest a possible further significant rally in grains, fundamentally demand has slowed from the recent rise in prices. Even soybean monthly crush has slowed from last year's pace (reported yesterday), and export demand has seemed to slow for the major crops (even soybeans). Although soybeans was on a torrid export pace and has cooled to what is still a hot pace, the fact is they have cooled. That is not a bullish sign in the marketplace, and is a concern for market bulls. Wheat export remains OK, but for a crop that supposedly has unlimited export potential for US growers, we are unable to sell or ship amounts which indicate a realization of that great potential. So many world wheat exporters had short crops in 2010, either with yield or quality, but still US exports remain somewhat lackluster halfway through the export season.
It's interesting that this should be the case, and although US exports are projected sharply higher for 2010, still we have a projected carryout of over 800 mb of wheat - higher even than projected corn carryout. It spite of all the world production and quality problems, the US is still forecast to have over 800 mb of milling quality wheat leftover from last year (which virtually every bushel of US grain was milling quality in 2010).
That leaves us in a quandary while we sit and watch and wait while US grain prices stall out in the recent price ranges. Can we go higher, blow through the old highs on charts, and break out of these pennant (wheat) and flag (corn and soybeans) formations on charts, indicating a much bigger rally is yet in the offing for grains? Or do we stall out here, and move quickly lower indicating that grains have made their runs for now?