It was a choppy week in the grain markets as the corn market rallied on strong technical action to start the week, while soybeans were able to shake off a technical reversal lower on Monday to trade steady for most of the week.
The wheat market was not so lucky, as a failure in March wheat at its 100-day moving average and an announced record Canadian wheat crop sent wheat values to their lowest levels in three months. The wheat fund short position has never been larger than it is currently. This has some in the trade projecting a short covering bounce to prices as we approach year end. However, the funds have now held a sizable short position in wheat for nearly a year and seem quite content to defend that position at every opportunity. It will likely take a significant fundamental change in the wheat market to shake a bulk of these short positions loose.
The corn market started the week by trading to new three-year lows on Monday before staging a recovery and closing higher that day. This hook reversal on the charts started a $.20 cent rally led largely by fund short covering. The corn market was able shake off the news of corn export cancellations by China due to an unapproved GMO trait. It is expected that more cancellations will occur as several ships are still en route to China.
The soybean trade was somewhat erratic as the market weighed the negative technical close on Monday against continued solid Chinese demand. The soybean market is a very tricky market to trade at this time, as tight domestic supplies require that prices might have to surge if export demand remains strong. However, on the other hand market participants have to be careful of Chinese export cancellations due to overbooking and a solid start to the South American growing season.
Next Tuesday the USDA will release its updated supply and demand updates. No corn or soybean production adjustments will be made until the January report. We look for a tightening of the corn and soybean balance sheets due to stronger export and domestic demand. We took advantage of mid-week price strength to begin re-establishing hedge protection in the corn market.
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