Market Matters Blog
Pat Hill DTN Markets Editor

Wednesday 11/18/09
A Rally to Reward or to Ignore?

As we've been noting in the daily cash index comments, cash grain bids have seen some appreciation in recent days. Has that been enough incentive to prompt cash sales?

There seems to be a fair divergence of opinion about the chances that prices will stall out soon or continue to work higher, and, in either case, what strategy cash marketers should be considering. Here's a sample of what some DTN premium service providers and others are telling clients:

Brock told its clients that Jan beans appear set to head for Aug highs at $10.65 1/2-$10.68, and upside objective technically is $10.94 1/2.

"Futures are starting to get overbought, which could slow buying interest somewhat, but the weaker dollar may help support further general buying of commodities by investment funds," Brock said. As of Wednesday morning, Brock had advised having '09 beans 60 percent forward contracted and hedgers 70 percent contracted; for corn they were 60 percent forward contracted for cash, and hedgers are also 60 percent contracted.

In comments to clients Stewart-Peterson reasoned, "The market doesn't have to keep going up. It factors events into price and then moves on. The market generally peaks on a climax in fear. We think this happened at 413-1/2. This rally has not changed the long-term trend. We originally were looking for 220-190 by this fall, but that will obviously have to get pushed back. Our latest special corn report showed that we were a year early on the expectations for 220-190. ... The long-term technical analysis remains bearish. Only a close over 450 in the front month will change this. We anticipate a slow grind lower to 190-220 by next fall."

Informa says $11 is possible in the near term for soybeans, but trend yields in South America will present a "lower price environment" in the last half of 2009/10.

Alan Brugler, president, Brugler Marketing and Management: Brugler said he had advised end users to get coverage of corn and bean meal into January or February a couple of weeks ago.

"We made a token corn sale -- 5 percent of production on the swing before this one. We haven't done anything on this one yet. I'm not convinced the move for week is over yet."

At CommStock, David Kruse told his clients, "A test of the June highs at 1105 would be the next major barrier as the soybean market thrusts up out of bull flags. A punch to new highs in corn should bring in another wave of fund buying. Bears have a problem in that CBOT markets ignore traditional bearish fundamentals. The reason for e-cbot strength is the same as for other recent gains. Gold is making new highs . . . the dollar is weaker. 20 day moving average resistance turned back the rally attempt in the dollar again. The investment funds are in control of these markets and they will fail only when the investment funds decide enough is enough and bank profits. Volatility will ensue. We made 2009 cash corn/soybean sales, then reopened upside potential on half with March corn and soybean call options. I'm thinking $4.50 March corn and $11 March soybeans to take profit on calls. ... For traditional fundamentals to be overcome takes something very powerful occurring in the marketplace. The investment inflow into commodity markets dominates, overriding traditional fundamentals in the current economic environment.

In DTN's Stragegies, the 2009/10 corn crop was 40 percent sold through forward contracts as of Nov. 17, with a downside risk for futures to slide back into the low $3s. Soybeans were 70 percent forward contracted for the 09/10 crop year.
Posted at 2:29PM CST 11/18/09 by Pat Hill
Comments (6)
S-P is out of their minds. They have been bearish since before the fall - talking 1.90-2.20 corn (now they say they were "a year early" - just missed by a little) - and 5.00-6.00 beans and 3.00 wheat - hell wheat is approaching 6.00!! It is absolutely nuts. They have been almost 100% wrong. People who are paying for their services must be going out of their minds with disgust. I follow many companies and they have been the only one to be consistently bearish and consistently wrong.
Posted by Peter Smith at 3:13PM CST 11/18/09
Just checked for posterity. S-P is calling "double tops" in both wheat and corn after today and look for lower price action now. At least they are consistent, even a broken clock is right twice a day! They are due!
Posted by Peter Smith at 5:07PM CST 11/18/09
It is actually embarrassing that S-P claims that they are wrong by a year let alone say that a close above 4.50 in the front month is needed to change this dire prediction. How can they expect to have any credibility if corn remains above 2.80 and lower than 4.40 for the next 16 months. I'm glad I don't waste my money on that crap.
Posted by Paul Beiser at 10:01PM CST 11/18/09
The problem with traditional fundamental analysis is that it doesn't have a formula for accounting for the flow of money. With the former investment firms (now banks) able to borrow at 0% interest from the Fed, what does that do to their cash uses? Unfortunately, as today's export report shows, these high prices aren't doing us any long term favors on getting this crop sold. While corn harvest is late, based on yield reports that I am reading, yields are phenominal. Even soybeans are doing better than expected. So, if this is a profitable price, why wouldn't you sell something?
Posted by Paul Overby at 8:14AM CST 11/19/09
Althought I don't agree with S-P that we will hit the down trend objective that they have.......from a risk management perspective it is proably smart to realize that their are some that technically and fundamentally have a longer term bearish view.......and it is smart to realize that these markets are controlled by the funds and their money and the downside could be tremendous if they stop buying or simply just liquidate some of thier length........same token upside could be temendous if they keep buying so having a solid plan that leaves one very flexible is probably very important right now
Posted by Jeremey Frost at 5:07PM CST 11/19/09
Very interesting discussion -- thanks to all of you!
Posted by Pat Hill at 6:22AM CST 11/20/09
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