Grains closed sharply lower today with March corn 7 ½ cents lower, March wheat down 22 ¾, and March soybeans down 17 ¼.
Late last night congress passed the Fiscal Cliff bill which the outside markets viewed as quite positive. There was a sharp rally on Monday afternoon in anticipation of a compromise and that rally was extended today. The Dow Jones futures closed up over 300 points on the trading session!
Congress also passed the extension of the Farm Bill including the $1/gallon blender’s credit for biodiesel retroactive for 2012 and for 2013. These credits were particularly bullish for soyoil and we saw a corresponding rally in the March contract finishing 135 points higher! With the stock market sharply higher and the dollar sharply lower the opening grain prices were also quite strong. Within the first half hour of trading it was clear that the rally was slowing and long liquidation appeared to have taken control. This coincided with a strengthening US Dollar index as well.
What fueled the massive selloff? Favorable South American weather is certainly not helping support prices. It could be money flowing out of agricultural commodities and back in the stock market. It could also be additional producer hedging after the 1st of the year. The next downside target for March corn is at the 200 day moving average of $6.83.
March soybeans broke their recent lows and look poised to try and test the November low of $13.56. The outside down day was also a negative short term technical indicator for March soybeans.
March wheat had an outside down day which is short term negative. Wheat has finally reached its 68.2% retracement level which may slow the selling. Fund rebalancing starts on Monday and expectations are for a large exit of Chicago wheat futures.
The January 11th report will be the next major indicator for price action in grains. Until then we could see choppy markets. Today’s US Dollar Index rally seemed to directly impact grains so continue to watch currencies for flat price direction.
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