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Weak Technicals, Strong Fundamentals Collide in Grains

April 22, 2011

 As farmers eager to begin planting in many areas of the Midwest watch the skies and the thermometer in hopes of higher temperatures, Jerry Gulke is watching the technical indicators in the markets. The skies give a bullish picture. The charts show something completely different, says the president of the Gulke Group.

"Sometimes you can get a better feel for how the markets are reacting to fundamentals. (See Dec. '11 Corn Chart.) When you get a technical negative reaction to bullish fundamentals, it gives you pause for concern."
That set the tone for the week this week. Despite that tone, however, the markets bounced back Thursday to close higher. This is when it’s particularly important to pay attention to the markets to get a true picture of what is happening, Gulke says.
"When I start seeing some technical reactions I look for what could be going wrong out there demand-wise that tells me we could be doing the job of curbing demand. Maybe it’s not as obvious to me or somebody else."
One area driving down corn and soybean prices may be in the livestock arena. Gulke points to the hog markets that were lower Thursday.  and that may be an indicator. "We’ve had hogs over $100/cwt and you have to ask if the grocery stores want to stock their shelves with product that high. They’re pretty nervous about wanting to sell that, so there’s been some resistance. That’s what the market is dealing with."
Dollar values also aided corn prices this week as it dropped to lows not seen since 2008. If this trend continues, it will remain positive for corn prices.
The threat of a U.S. government default is also on trader’s minds, but it’s having little impact on the markets right now. Gulke says the default doesn’t mean the government is out of money. It just means the government may not pay principle or interest for some time, because tax money is still coming in.
On the fundamental side, it’s still too early to be concerned about delayed planting. "We’re heading towards July, not winter, So the chances of it staying cool for too long are getting slim." Farmers have the ability to plant a crop quickly when the weather opens up and allows field work to begin, he says.


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