Sunday Night Grain Outlook, 1-24-10
Sunday Night Grain Outlook
By Duane Lowry
Sunday, January 24, 2010
OPENING CALL:
Corn= steady-better, Wheat= steady-better, Soybeans= steady-better.
Weather on Friday focused on improved rain chances during the 11-15 period for Argentina. Today's forecast has that rain system arriving on days 9-10, but the expected coverage has been reduced as well as the confidence. Dryness concerns seem most focused on soybeans and mostly in central regions. The 11-15 day forecast is dry, with any precip occurring during the next 8 days to total less than 10% coverage. Based on the calendar, we certainly have time left to reduce Argentina's soybean production potential. But so far, overall conditions have been favorable. Some stress will be seen during the next 10 days due to heat and dryness, but if rains fall during the system that is expected on days 9-10, overall production concerns would remain limited enough to question any impact on the overall longer-term bearish global fundamental profiles. However, if that rain system were to disappoint, we could quickly find 40% or more of the soybean acreage beginning to shave production potential with enough calendar left to create a more notable impact. From a price discovery standpoint, you have to ask yourself if/when the price discovery process had reached a point where the bearish fundamental profile has been discounted enough "for the time being", and thus if the trade may be susceptible to short-covering activity because the weather spin now offers more of a concerning spin than any previous part of this growing season. From that perspective, it seems weather should have a bullish spin and we will see if traders begin to embrace that. It may not take much price strength to encourage a more cautiously supportive spin to weather rhetoric.
News> Chairman of the Senate Banking Committee, Chris Dodd, and Republican Senator member of the committee, Judd Gregg, both said this weekend that they believe Bernanke will win Senate backing for a second term as Fed Chairman. Senate Republican leader Mitch McConnell also said he anticipates Bernanke to be confirmed. The White House issued a statement saying they believe Bernanke will be confirmed. After stock index weakness last week that was blamed on concerns Bernanke would not be confirmed, there appeared to be an overt effort by Washington to instill calm and certainty that Bernanke will in fact be confirmed, but not without many voicing their disgust about many items.
Wheat will find good support on any minor weakness, as overall price action the past few days has suggested "sold-out" conditions. New news is limited. After entering longer-term support last week, the short-term technical conditions should help to generate further stabilization and maybe some decent recovery efforts. Inter-market spreads also could provide some buying for wheat. While longer-term conditions may allow/suggest further eventual price erosion, maybe better selling opportunities will first unfold. Somebody else can be bearish wheat at this time.
Corn has little new news and will continue to operate amide a bearish fundamental backdrop. That said however, short-term technical indicators are poised for some recovery and the bearish fundamental news has reached the point where it is now fully known/embraced. The weekly commitment-of-traders data also show significant liquidation and more than most expected. We may find bottom-picking, user pricing and short-covering activity from multiple market sectors tonight/this week. Any weakness, if it occurs, should be limited and short-lived.
Soybeans have the same basic storyline where fundamental profiles are and will remain bearish, but short-term indicators suggest selling pressures may have peaked and it is time for some recovery attempt. Argentina's weather forecast is drier and confidence in the one system that does exist for the next two weeks has been shaved from Friday. Outside market tone weighed heavily on the soy-complex late last week and much of that heavy tone came from fears Bernanke would not be re-appointed, which would fuel uncertainty/panic. The weekend was filled with attempts from both sides of the political isles to calm those fears and suggest in the end Bernanke would be approved. I look for firmness tonight/this week, as recovery efforts begin to take hold.
In summary, traders have finally come to accept/embrace the bearish fundamental profile that has clearly existed for some time, but had also clearly been ignored or undiscovered by the trade in general. Consequently, it will be very difficult to find a fundamental argument that is worthy of inspiring any sort of meaningful rally event. Yet, we all know what the market is really in search of now is not a bullish fundamental argument but instead that elusive point where the "known" storyline becomes fully discounted for the time being and markets begin to stage consolidation/recovery patterns. Oversold technical indications exist. Last week's soy price action indicated signs of exhaustion selling activity. Four of the last 5 daily settlement prices in corn were in a 4-cent range. Friday's late corn weakness only revisited levels already achieved on Wednesday. The last 4 daily wheat settlement prices have been in a 3-cent range. Weather watchers must recognize limited precip expectations exist for Argentina during the next two weeks, with the one rain event found being reduced in both coverage and confidence from Friday's forecast, which may be another reason to spur short-covering activity. Yet it may be outside markets and how they react to weekend developments towards Bernanke's survival that may be the ultimate excuse for early week price action. Wheat, corn and soybeans are all due for some corrective bounce activity. Any weakness potential tonight should be limited. If outside markets provide some support, corrective grain/soy strength potential may be greater than most will consider.
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.
