Correction or Trend Reversal For Grains?

January 14, 2013 11:32 PM

What Traders are Talking About:

* More than a bounce? Price action in the corn, soybean and wheat markets the past two trading sessions hints that a short-term lows are in place. The most compelling case of this is in the corn market as futures have pushed back into the old sideways "comfort zone." Soybean futures spiked the November low before bouncing sharply the past two sessions. Wheat futures have the most work to do to prove this is more than a corrective bounce as that market was pressured the heaviest. While technical price action is signaling short-term lows are in place, it's going to take fresh demand to fuel sustained buying interest. That may be a problem as aside from soybeans (and soy products), demand is sluggish.

The long and short of it: At this stage, the price recovery in corn, soybeans and wheat is little more than a technical correction, though it still signals short-term lows are in place.

* Funds buying again. From early December through early this month, funds were aggressive sellers of corn, soybeans and wheat as they liquidated long positions and in the case of wheat built a net short position. But that has changed the past two days. On Friday, funds were net buyers of corn (11,000 contracts), Chicago wheat (7,000) and soybean meal (4,000). They followed that up with even more aggressive buying yesterday, purchasing 11,000 contracts of corn, 15,000 contracts of soybeans, 6,000 contracts of Chicago wheat, 5,000 contracts of meal and 7,000 contracts of soyoil.

The long and short of it: The flow of fund money into the long side of the market is a sign prices got too cheap and value buying has returned. Fund activity is as much a part of the near-term price direction as market fundamentals.


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