The wheat market seems to have fundamental support. The wheat sold off today on index rebalancing and profit taking. The profit taking seems to be coming after the winter holidays instead of the end of the year profit taking that was expected. The March Chicago dropped 1.9% today. It is estimated that the funds sold 8,000 contracts today with 4,000 of these contracts being attributed to index rebalancing. For the week, March Wheat was down 22 1/4. This was the first weekly decline since the week ended Dec 12, 2010.
Going into the end of the year there should be no surprise to see it end the way we have seen it trade for the entire second half, bullish. Market mentality is that funds will move back into the corn, buying it aggressively to start the New Year. It may be more accurate to look at this market year on year to start and end on the Jan report rather than years end. It appears we have come full circle.
It is generally thought that the December report does not make much of a wave in the markets. For once, things turned out as expected.
USDA raised corn carryout slightly to 832 million bushels. This is 5 million bushels more than the number they put out in November. Of all places, this increase to carryout came from raising corn imports 5 million bushels. That takes a very small number on the balance sheet and increases it slightly. Imports were 10 million in the last report and are now 15.
Fundamental Support: Corn this week rose 20 1/2 cents. Big support came from the rocketing wheat market, further talk that China needs to import corn next year, and partially from Argentine corn concerns. Looking ahead to next week, we do not look for a major change to USDA’s balance sheet. They traditionally wait until January to adjust production numbers. That leaves us arguing about ethanol and exports. We will release our numbers on Monday.
The highest close of the corn uptrend was reached today. It is oddly interesting to note this was the highest close since September 26, 2008.
That is almost two years ago. Of course, at that level, the market was on its way down from June highs.
Corn: We are not interested in picking apart why exactly today’s big move was seen. It is simply another day in a massive rally. The primary driver of price remains perceptions of yield falling to 160. Today’s secondary stories were simply like throwing matches on a burning fire. There was a rumor that Credit Suisse devoted $1 billion to grain commodities overnight. The Chinese are saying they will have a frost in key growing areas. Canada was also highlighted with frost concern.
Direction: Having pointed out the good news for this week we can also discuss the issues that all traders must turn to when looking at supply/demand tables. Even after plugging in drought problems we are still left with burdensome stocks in the US and higher than normal stocks worldwide. What is bullish about this? This market may have a chance of hitting 775 on the December sometime soon but we cannot suggest this move needs to take out last week’s highs. We are neutral to bearish. Producers should be getting active in sales on this move…Rich Nelson
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