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Tim Hannagan: Market jockeying

The Thursday USDA weekly export sales report was disappointing across-the-board. 

Wheat exports were 644 t.m.t. up 9% from  the week prior, but 22% under our four-week average. No key world buyer's were on the list. 

Corn sales were 369,000 metric tons down 47% from the week prior and 52% under our four  week average. Key Asian customers were in for 247,000 metric tons versus 328 the week prior. 

Bean exports were 489,000 metric tons off 26% from the week prior and 9% under our four-week average. 

Good news was China was in for the total of 489,000 metric tons versus 113 the week prior. Here's why we should expect lower exports in January. One, importers know that farmers wait for the new year to bring grain to market pushing tax liability into the new year. This pushes cash prices lower. Two, South American crops begin early harvest in January into February bringing fresh world product online at a usual discount to US prices. Three, importers saw large trading funds sell heavily in January, the last two years leaving thoughts of similar price breaks coming after the January 12 USDA crop report.  

Though demand looks bullish long-term, traders see demand  bearish near-term. Two issues control the grain trading between now and next Wednesday. Weather in Argentina's corn fields and the Wednesday USDA crop report. 

We come in Monday and price in the weather first thing. Wet were down, dry were up. Regardless of the weather's effect on prices Monday we will see an overriding affect on the perception of what Wednesday's big crop report will say. 

Current thinking is the market  fears a bullish report with lower corn and being production and lower ending stocks. Of course a bullish report could easily take corn and beans to new contract highs. But, after the crop report influence on prices we have to be ready for a price correction in the market as large trading funds holding record long positions fat with profits re- calibrate their portfolios.  

They (funds) need to reduce what's front-loaded and eventually reposition further out. Here's a history lesson. March 2010 corn futures rallied in December of 2009 from 3.80 to a January 11 high of 4.26. Then broke $.65 the next 10 trading days and a  total of $.80 into February 5. Beans and wheat were similar. 

The may 2009 corn contract rallied from December 2008 low 3.16 to a January 6, 2009 high of 4.40 then broke $.70 the next six days on fund recalibrating a positions. Beans were similar. This year's price action is similar, with funds rallying corn and soybeans in December. Additionally, corn was up $0.80 in December. In that same month, soybean prices were up $0.60 and wheat $1.50 from the November low. 

We're already seeing some cautious profit-taking to start the new year in anticipation of another measurable price correction. The only thing that could keep this expected January break from occurring is if we come in next week and see more crop damaging weather in Argentina and expected through month-end on top of a surprisingly bullish crop report. Higher prices will occur, with weather over-shadowing seasonals and  the correction coming in February. Either way, the correction will occur but from what price level? 

The two prior years saw the brakes, as the final crop production reports in January came and went uneventful. This year we have the weather market in the worlds number two corn producer/exporter and number three bean producer/exporter, Argentina. This could push back the break. We will have to balance the weather reports against the crop report to determine if we sell short after the report or wait.

Tim Hannagan is a senior grain analyst with 

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