The grain markets started the week on a softer tone, then collapsed Wednesday on quarter end fund liquidation. Wednesday’s lows represented the lowest levels since early July and had technicians discussing targets tied to the 50% retracement areas for December corn and November soybeans near $6.85 and $15.00 respectively. Those expectations were derailed by yet another surprising USDA stocks report on Friday.
The first half of the week was dominated by fund profit taking ahead of the quarter’s end as well as higher yield expectations in soybeans and continued signs of demand erosion for corn. The fund long position in soybeans had recently grown near the record levels reached in early May. The liquidation break that developed in May saw the fund long position reduced by nearly 40%, before building that position back near the May levels by mid July. This most recent break has seen the fund long position in soybeans reduced by just over 30% with month end selling.
Perhaps, there was yet another round of fund selling due today were it not for the surprises to the corn and wheat stocks figures. With corn prices locked limit up and wheat values sharply higher, soybeans have caught a bid today on spillover.
There will be a lot of talk about this week’s lows being the seasonal lows. I do not disagree with that premise. Corn rationing has taken place over the last several months as ethanol production slipped to two month lows this week and this week’s export data released on Thursday showed corn sales near zero due to large cancellations of previous purchases to China and unknown destinations.
The lower stocks figure today does put a focus back on rationing once again. Fresh fund buying to start the next quarter as well and end users chasing missed opportunities may lead to further strength next week. December corn appears poised to trade back to the $7.90-$8.15 over the next few weeks. A sustained move above $8.00 does not seem likely without a significant cut to corn production in the October 11th report.