Grain Double Whammy
Wheat – Wheat led the charge in grains yesterday, closing limit-up in the front month December futures. World Wheat stocks remain very tight, and the Australian harvest – already reduced in size due to drought – is of very poor quality. Wheat stocks are expected to shrink to 300 million bushels, down over 60 million bushels from the September report. After selling off sharply since the beginning of the month, the December contract jumped 37.50 cents the last two days, which can at least partially be attributed to funds squaring up positions prior to this morning's USDA Supply and Demand and Export Sales reports. Funds were reportedly short roughly 14,000 contracts (futures and options) coming into trading yesterday. Yesterday's rally did little to improve the technical outlook for Wheat, which remains bearish overall, but is showing signs of a possible short-term reversal. Momentum did turn positive and comes into trading at +38. The RSI stands at a neutral 51 percent, which leaves the door open for a possible run-up before the market experiences overbought conditions in the short term. Solid support comes in at 865, with minor support in the 775 area, while resistance can be found in the 895-900 area, 911.25 and contract highs of 961.50.
Soybeans – Beans have been a solid performer this week, climbing 56 cents over the last three trading sessions. Today's USDA Supply and Demand report is expected to show production at 2.648 billion bushels, which is higher than prior estimates, but lower than last year's 3.188 billion bushel figure. Yield per acre is also expected to rise to 41.9 bushels per acre, which trails last year's yield of 42.7 per acre. Talk among traders suggests that the yield may actually drop to 41 bpa due to the flooding in the Midwest in August and a warm, dry September. Funds have a net-long position of roughly 114,000 contracts (futures and options), which could spark a fire sale if today's numbers are disappointing. The November Bean chart is a bit messy. After confirming a bear flag on Monday, which figured to send the market into a tailspin, Beans rallied sharply to negate the pattern. The price action Tuesday and Wednesday caused a bullish engulfing on the charts, but momentum and RSI are showing bearish divergence. This confusion on the chart is not unusual in the days leading up to a key report, but leaves many traders scratching their heads nonetheless. Support comes in at 958 and recent lows of 922, while resistance can be found 994 and contract highs of 1017.75.
Corn – Corn remains the neglected child of the grain sector, unable to get the attention of traders. The USDA report may need to show some major surprises to get Corn traders excited. With analysts hyping up Corn in the early part of the year, farmers diverted acres earmarked for other crops, creating a glut. Analysts forecast the total U.S. Corn crop at 13.459 billion bushels, compared to13.308 billion in last month's report and 10.535 billion last year. Other than the rally late last month, which gave Corn bulls false hope, Corn prices have hovered near the $3.50 mark since June. Ethanol production has not been the boon that many expected, but an increase in the figure from the USDA may finally call Corn bulls into action. The December Corn chart seems to be forming a bearish coiling consolidation pattern, which could lead to more downside. Momentum comes in slightly bearish at -3 and the RSI is a neutral 37 percent. Support comes in at 335 and 325, while resistance can be found at 360 and 370.
Rob Kurzatkowski, Commodity Analyst
