Monday Night Grain Outlook, 1-18-10

Sunday Night Grain Outlook
By Duane Lowry
Monday, January 18, 2010

OPENING CALL:
Corn= steady-better,     Wheat= steady-better,     Soybeans= steady-better.

Weather is similar to Friday, with maybe a slightly wetter short-term slant to Argentina. However, at least half of the region will see limited precip during the next ten days, with periods of extreme heat seen later this week and again during the 11-15 day period.            

News> Palm Oil futures were lower today, down 5. China soybean futures were lower, down 20.

Wheat may start lower in sympathy with Friday's weak close, but any weakness should quickly lack follow-through energy. Short-term indicators are due a decent corrective bounce. The ability to eclipse all of Friday's losses by the end of the week seems like a reasonable and yet conservative corrective target. New news is limited. Fundamental backdrops will remain bearish, but last week's USDA data has been digested and now the market will look to see if they can trap some late-arriving bears.                          

Corn has a similar situation to wheat. There is no news and the backdrop will remain bearish. However, selling pressures should have quickly accomplished some sort of short-term culmination point by Friday's close. It would have been the 3rd day margin call, in front of a long weekend and the scope of the margin calls would have been significant enough to spur loud demands from the margin clerks and panic escalation by the holder of the long position, as the equity drop was 200% of initial margin within just 4 trading sessions. Most traders aren't prepared to calmly handle that type of move without resulting in a liquidation response. Consequently, you had a litany of reasons to believe liquidation pressures were thorough and finding someone willing to establish new short positions on a 50-cent straight down decline might be difficult. We will definitely be finding sellers on rallies as a general backdrop theme for at least several weeks, but not necessarily sellers on weakness. Producers are in shock and usually that means unwilling to make sales. The tech crowd will see conditions as too oversold to make sales early this week. Expect some recovery attempt as the week evolves. Any early weakness tonight/tomorrow, if it occurs, should prove to be a short-term buying opportunity.      

Soybeans will find some willing sellers on Friday's poor close and perceptions South American weather is good enough to avoid any weather excitement, despite having some dry/hot periods ahead for some areas. Short-term technical conditions will find mixed interpretations, with some suggesting price action the past three days was only a pause and we may be ready to push lower now. This is not an unreasonable assessment, but I don't share it. I am more inclined to believe that we found soybean traders during the past three sessions that were confident to establish short positions. Yet, they are not so confident that they will avoid being chased out of positions if values are able to generate a recovery bounce that exceeds Friday's highs, which seems like a reasonable possibility at some point this week. Outside markets are positioned for some recovery efforts during the next several days that will provide support to commodities. After experiencing a $1 decline during the last 7 sessions, it is not unreasonable to consider allowing room for a 25-35 cent recovery event. Long-term outlook remains very bearish and such recovery attempts should be seen by multiple market sectors as selling opportunities.                                   

In summary, South American weather will find mixed spins, with most unwilling to see tradable concerns. Outside markets will provide some background support this week. Short-term technical indicators should discourage selling on weakness early this week and may encourage some bottom-picking activity. Hopefully we are set to generate a respectable recovery bounce during the next several days, setting up the next hedging and longer-term selling opportunities. Some weakness early this week/tonight can't be ruled out, but I think it will be limited and have little ability to build downside momentum. Many markets should have reached at least a temporary "sold-out" condition.                         

This newsletter is prepared from information believed to be reliable. Early Market News, Inc. does not guarantee that such information is accurate or complete and it should not be relied upon as such. Opinions expressed are subject to change without notice.