Well, it was a Not-So-Happy New Year for grain bulls. Following beneficial rains over the long weekend in Brazil, soybeans started the year trading sharply lower and continued that trajectory through the balance of the week. Corn followed suit, and proceeded to make new contract lows. Meanwhile, wheat prices managed to recover most of their losses by the end of the week on rumors of Chinese buying interest. Next week’s WASDE report will likely bring ample volatility to the grain markets as USDA’s current estimation for Brazilian soybean production remains dramatically higher than CONAB and other major prognosticators.
Corn:
March corn kicked off the new year by scoring a new contract low, trading all the way down to 460. For the week, March corn settled 10 ½ cents lower to settle at 460 ¾. Much of the weakness in corn can be attributed to the pressure observed in soybeans, but next Friday’s WASDE report may be a catalyst to bring the contract off of its lows. Typically, the middle of January is friendly to the grain complex, and the looming uncertainty surrounding South American crop estimates may serve as fuel for risk premium to build its way into the contract, and short-covering has the potential to extend the move. Managed money funds compounded their bearish bets on corn by adding around 20,000 contracts to their net-short position, which now totals 197,326 contracts – 162,354 long positions vs. 359,680 short positions. The line in the sand that bulls must defend now sits at 450. However, if bulls manage push prices back above our 466 ½ – 470 pivot pocket, short-covering may set up a test of 3-star resistance between 481 and 484.
Soybeans:
Central Brazil finally received some much-needed rain over the holiday weekend, and that was a major boon to March soybeans. Tuesday’s open saw March beans gap 7 ½ cents lower to open the new year at 1290 ½. After settling sharply lower on Tuesday, soybean bulls largely failed to gain their sea legs and settled 41 ¾ cents lower for the week to 1256 ¼. Currently, March beans are hovering just above the 61.8% retracement level of the May 31st low and July 24th high at 1253 ¼. If there’s one contract that stands to gain from major adjustments in next week’s WASDE report, it’s March beans. USDA’s current estimates are roughly 9 MMT higher than CONAB’s estimates for Brazilian soybean production, and a sharp line-item adjustment lower by USDA could bring helium to March soybean prices in very short order. Weak export performance this week also did not do bulls any favors. If Bulls can defend 1250, they’ll have their work cut out for them to work back to the 1282-1285 pivot pocket, and fill the gap from Tuesday’s open. Managed funds are again aggressively neutral holding a net-short position of just 11,629 contracts. Broken down, that is just 69,804 long positions compared to 81,433 short positions.
Wheat:
Rumors of Chinese buying interest were a major factor in keeping wheat afloat while corn and soybeans floundered. Comparatively, the losses observed in March SRW wheat were modest compared to corn and soybeans. The contract managed to trade all the way down to 591 ¼ before rallying back to settle at 616 for the week – down 12 cents. It feels like Bizzaro world watching wheat outperform corn and soybeans, but that’s been the status quo over the past 4 weeks or so. If we do see substantial strength in corn and soybean prices following Friday’s WASDE report, it could lay the groundwork for testing 3-star resistance between 645 and 650. While managed funds have tempered their bearish bets on wheat over the past few months, they still hold a net-short position of 60,277 contracts. Broken down, that is 69,795 long positions against 130,072 short positions.
