Tuesday, December 3, 2013

Possible rejection of U.S. corn sparks losses; soybeans, wheat slide

By Allendale Inc

Corn: Early talk in the day was that China had rejected one more cargo of U.S. corn from finding non-approved GMO again. This led to early weakness but again large support was seen at and just below contract lows. While this is the second round of China rejecting corn talk, in total we are still only talking three cargoes here, which is certainly not enough to spark large scale selling.

It should come as little surprise that once corn fell under the contract lows of 420, it quickly bounced back. We have seen this happen in March corn each time new lows were made since the lows were 460. There is little reason to expect the recent pattern to change. A long-term grind lower eventually pushes corn to new contract lows, then a technical bounce is seen, then the grind continues again.

Both corn bulls and bears can continue taking their shots at the appropriate times while looking for factors that could change this trend. Possible changes would be cancellations of sales and more rejected cargoes for the bear side while bulls look for even more bean buying to have support spill over to beans. Of course, the bulls can benefit from a sudden increase in sales as well, but that number would have to be close to 1.5 mmt of sales in a week. Bears will likely be quick to sell only a little further bounce than the one seen today. Bulls can buy, once again, on a move to or just under new contract lows of 418 1/2…Ryan Ettner

Soybeans: Soybeans started the week on a negative note as a Sunday night rally was faded by the pit opening and was under pressure the rest of the session. After news that China had rejected two loads of corn due to GMO issues pressed the corn lower, some in the trade booked profits in their bean positions. Most in the trade believe that it is just a matter of time before China will cancel some of the beans they have purchased. Last year they got burnt and had to pay premium for U.S beans when a short crop combined with shipping delays from S.A, forced them to buying beans from the U.S. when they traditionally buy S.A. Beans.

It looks like China might have overbought some of their winter/spring needs and will cancel some of the buys once they have faith the S.A. crop is “made” and the shipping of the crop goes smoothly. They have of 786 million bushels of beans purchased unshipped as Nov. 21. They have purchased 1.352 billion of bushels of beans year to date.

Export inspections Monday came in at 52.6 million bushels, which was way above the 21.8 million bushels needed to be shipped out to keep up with the USDA demand estimates of 1.450 billion bushels. The trade had anticipated the inspections to come in between 55 to 90 million bushels.

Weather in S.A. continues to look good. AgRural is the latest firm to increase its estimate of soybean production due to the good weather they have been receiving. They raised their estimate from 88.7 million tonnes to now 89.4. They see planting at 89% complete compared with 85% last year and 89% for the five-year average. The USDA’s Ag attaché in Argentina estimated their soybean crop at 57.5 million tonnes. This would be sharply higher than USDA’s official latest forecast of 53.5. The attaché also suggests soybean plantings could reach up to 21 million hectares at the expense of corn.

Between now and Christmas, Allendale research shows that soybeans have rallied nine out of 15 years for a 42-¾ cent average gain. As for the six out of 15 years that the market sold off, the average loss was 19-½ cents. With the weather looking so good in S.A., we are hesitant to chase the market over the $13.00 level and think eventually beans will work back down to the $12.50 level.…Jim McCormick.

Wheat: Wheat finished the day lower as trade saw pressure on technical selling and profit taking on the recent bounce. We rejected new highs for the move earlier in the session to finish near the lows but we still have a rounded bottom pattern intact. We could see a little more pressure to test the 20-day moving average. A strong dollar could have also led to pressure in this market. We could see fund traders take profits into the end of the year and in the wheat market this could mean a slight bounce as managed money may take profits to help their books look a little better into the end of the year.

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