They Went to the Bank

10/29/2009

CORN

Monday’s report began with our weekly export inspection report showing 23.9 million bushels of corn was inspected by the U.S.D.A. for near term shipment.  This was under the week prior of 31.4 and four week average of 28.5 m.b  Clearly the 4.00 per bushel area we recently hit and ample ending stocks inventory of 1.6 b.b has importers backing off and waiting for a harvest correction before re-entering.  Charts suggest a pull back to 3.55 is possible and that would be a 50% retracement of the recent six week rally.  To pull back to the 3.50 area we need to see a break in the weather to allow the harvest to catch up and some weather gurus think next week could turn drier allowing harvest to move full speed.  This would drop the cash and pressure the futures.  If this occurs, we would be buyers down there to be long into what could be a bullish November 10 U.S.D.A. crop report.  After the close Monday, our crop progress report came out.  It put maturity of the crop at 90% with Illinois 88, Indiana 87and with Michigan and Wisconsin at 81% fully mature.  The growing season is over so, these states never fully developed leaving room for many pre report trade guesses on the November 10 U.S.D.A. crop report to show lower production versus the September report.  That’s the next bullish news to enter as weather after this week is starting to look drier.

Harvest was put at 20% complete versus 17 the week prior and 10 year average of 58%.  Needless to say this will end up being the latest corn harvest in history, but harvest delays are moving to the sidelines now as a pricing force.  It’s all about the harvest beginning in a bigger way now probably sooner than later.  The market accepts the fact that any crop damage to corn and beans is over.  Harvest delays only addresses the immediate cash basis being paid.  The current weather pattern as seen by wxrisk.com, the weather site, sees Southern delta rain through Wednesday, and the Midwest rain through Thursday and Friday.  It’s not as wet in the Midwest this week as last week, but harvest delays continue.  Its next week that is uncertain.  Today’s weather update sees next week as potentially very dry.  If it’s dry after a dry weekend and lighter rain this week, harvest will surge quickly.  On our last report, last Friday, I gave the potential for a higher open on Monday, which we got but gave two reasons why this week would be a profit taking week and both those reasons came to play.  They were month end profit taking by index and trend following funds and index fund longs having to sell before weeks end to meet new position limits set by regulatory agencies.  But, be careful as a turn up sharply in crude oil and a sharp drop in the dollar index and all the recent selling will turn back as buying.  December corn has support at  3.52, the longer term trend line.  I would prefer buying close to the 3.50 area, but a close back over 3.93 sets up a test of new highs.

BEANS

Monday’s weekly export inspections showed another big demand number, for our second consecutive week, coming in at 43.7 m.b inspected for near term export versus 40.2 last week and our four week average of 18.5.  China was this big buyer at 30.4 m.b of the total to continue their goal to garner as much of the U.S soy crop as possible to meet their expanding protein needs and stockpile inventory until the South American crop becomes clearer after January.  I except Chinese demand to remain strong into late November.  After the close Monday, our crop progress report came out.  It put harvest at 44% complete versus 30 the week prior and 10 year average of 80%.  The harvest pace, though slow, was much faster than corn.  I had noted in prior reports, to expect farmers to harvest corn last and store most of it until spring high prices enter and aggressively harvest and sell beans for cash to pay debit due at harvest time on the farm.

Ok, after the higher open Monday that I called for on my Friday report, we got our month end profit taking and index fund liquidating I called for with beans off 30 cents or more from Monday’s high.  I noted that if and when we move under 10.00 bases November next stop is 9.70.  We hit 9.59 today.  Next support lies at 9.55.  Goal this week is to finish off our month end profit taking and find a price low to buy ahead of a bullish crop report on November 10.

WHEAT

Monday’s weekly export inspection numbers showed 14.3 m.b. of wheat was inspected for near term export, down from 18.8 the week prior and four week average of 20.  Well, that’s what a three week 1.40 rally will do, kill exports.  With a record 86.4 m.b ending stocks inventory, importers won’t chase higher prices, especially as we are now a little higher in price than some of our export competitors.  Demand can drive wheat higher as inventories are too high to demand totals, but demand can continue to encourage large short position holders to continue to want to buy back those shorts.  The last four weeks have seen trend following funds go from short 70 thousand contracts to 60, 47 and now 37 thousand.  The 9 cent higher open Monday gave way to a 68 cent correction as index funds that entered the week long 190 thousand contracts began selling to reduce their long position to meet the regulatory mandate to meet new lower position limits before months end.  We told you on Friday’s report to get ready for this, this week.  By Friday, their liquidation will be finished as it’s the last day of trading this month.  Then we are back to trend following funds that entered this week short 37 thousand contracts.  With the hard break from Monday’s high, we can expect them to be looking for a price to further liquidate their short position as it has been my belief they want to get to a neutral position, where they are no longer short.  December wheat has next support at 4.96 then 4.88.

Tim Hannagan

PFGBEST Research Team
800.563.9510
thannagan@pfgbest.com