Alpari Grain Outlook 12/04

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By Tim Hannagan | December 5, 2012 10:26 AM EST


Monday's 10 AM CST weekly export inspection report was released showing how much of each grain was asked to be inspected by the USDA for near-term export and becomes a gauge of demand. Wheat inspections were estimated at 14.1m.b., up from 8.1 last week and four week average of 10.7 . It's not the eye-popping 28 or 30m.b. the market needs to be bullish, but it's attracting attention after news over the weekend surfaced that big world buyer Egypt was in for 280 t.m.t. of US wheat on a 400 t.m.t. world purchase. The others involved in the exports were Romania and France at higher prices to the US. The importance of the Egyptian purchase was it's the first purchase of US wheat of any measurable size since the wheat marketing year began June 1.

As you know, on my weekly updates in October and early November, I noted we were about a month away from demand returning to the US. I pegged December as the primary month in which other countries like Australia, Russia, France and other European countries would be sold out, leaving the US as the world's primary port of origin for high-quality milling wheat. It was only a matter of time and the Egyptian purchase may be a red flag for us to keep a close eye on USDA daily export updates and the next weekly export sales report each Thursday at 7:30 AM CST and inspection reports each Monday.

After opening up $.15 on the emotions of the Egypt purchase, we pulled back to down on the day at midsession as traders know that 280 t.m.t. is not a trend changer of a sale and the 14.1 m.b. inspection report is well under what's considered bullish. It's what is next that may change the trend. Failure to extend our business to Egypt and others and the March 8th .50 support will be broken with 8.25 as next stop. A close over 9.05 sets up key major resistance at 9.25. A close over 9.25 and 10.30 is next. Because 9.25 is the major resistance line of the years high, it would signal a major chart trend change, leading to trend following funds not only adding new longs but buying back short positions off spreads.

Corn inspections were 9.6 m.b. down from 16.0 last week, 38.9 a year ago and four week average of 13.5. The last uptick in demand was the 60 cent drop in price down to 7.10 basis December futures the week of November 12. Pushing 7.65 last week will not encourage buying. March corn support is 7.35, a close under sets up 7.10 then the chart gap to 6.75. Resistance is 7.65 then 7.75. To fill the gap it will take good December growing weather in Argentina through month end into January as they are the world's number two producer exporter. Argentine corn crop is now 63% planted versus 73% a year ago. They have all of December to get it in even though the last half of December is considered late and leads to a shorter growing season and lower yields.

There is already talk that excessive rains will lead to a smaller crop by 3 to 5 million metric tons. It is too early to assume that but considering China has contracted to buy record Argentine tonnage this year, any shortfall and the market assumes the US will be asked to fill the hole. With our ending stocks inventory being historically low, a purchase even as small as 200 t.m.t. would push us up $.15-$.30 higher on the day.

Bean inspections were 51.0 million bushels versus 46.5 the week prior, and four week average of 57.5. China was in for 37.6 of the total versus the four prior weeks for 45.4, 61.9, 64 and 59 m.b. The total was over the week prior, but under the four week average after a weak weekly export sales report Thursday. Our demand for beans remains good but not great. We are leveling off as the Chinese and others wait supply side direction out of South America, as their growing season is now beginning. January bean support is 14.30 then 14.00 with resistance 14.60 then 14.95.

With the USDA monthly crop report due out next Tuesday, look for breaks to be bought but do not expect any measurable rallies over last week's highs as traders get balanced ahead of the report. They cover shorts on the brakes to cover risk and take longs off the rallies to ensure that the risk is covered in case there's a surprise on the report, since there is no production updates off this year's crop on this report. Traders can't expect any big change on ending stocks. This should keep a trend from developing in any measurable correction up or down.

If you are looking to open an account to trade futures at Alpari and use me as your broker, call 312-470-1112 x304, or e-mail me your ideas.

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