Alpari Grain Outlook 02/12

Monday's weekly export inspections report came out on time at 10 AM Central Time telling us how many millions of bushels were inspected by the USDA to be shipped near-term.

Wheat inspections were 22.4 million bushels, up from 15.3 the week prior and a four week average of 17. There was talk of big exports last week that would show up on Thursday's weekly export sales report. This uptick may be part of the export rumor as exporters get the wheat inspected so they can ship it. It's an uptick in demand, but we need consistency and larger numbers or the trade won't buy the futures. Trend following funds are still heavily short, about 60 thousand contracts. I still lean to supply-side problems being needed before funds buy them back. And it cannot come until our winter wheat crop breaks dormancy in March.

Corn inspections were 14.4 million bushels, versus the year's low of 6.3 last week and a four week average of 11.5. A $0.40 drop off from last week's high had China in for 6.3 of the total, versus 2.3 prior and possibly a little pre-Chinese holiday business being done. It's up on the week but not a bullish demand signal as 30 million bushels weekly are needed to be price bullish for the futures.

Bean inspections were 30.1 million bushels, down from 55.9 the week prior and a four week average of 45.5. China was in for 25 of the total, versus the three prior weeks of 30, 28, and 27 m.b. China's pullback could be attributed to their aggressive buying last week, meeting their pre-holiday needs, and then stepping back a little. Regardless, in the big picture it's a good number at 30.1 million bushels on the week even though lower.

Monday and Tuesday's price break led by beans was all weather. Lost in Friday's trading of the USDA crop report was the wet weather outlook on the crops in South America and that funds went home short going into the weekend. When the market opened Sunday night and confirmed the weather forecast, funds heavily sold beans with corn and wheat following. The driest areas last month of Uruguay and southern Brazil look to see measurable rains this week and again next week. Central Argentina remains a little dry this week for its corn but next week looks wetter.

There was nothing from Friday's USDA crop report that carried over to Monday. Friday's trade dealt with the marginal report changes. Argentine corn crop was lower, but Brazil higher. The US cut exports 50 million bushels, left ethanol usage unchanged and raised usage for corn sweeteners. The 14 m.b. increase in ending stocks is too little for funds to change their trading psychology from where it's at. Demand-side fundamentals remain corn's pricing source unless production problems arise in South America. To date even current production cuts in Argentina leaves it at a record crop.

For beans, Friday's report came in line with expectations. Old crop ending stocks were lower as demand for old crop year delivery before September 1 remains stronger than the government had expected. We're at 93% of our total export commitments for the year. They had to raise exports, but they offset the near term bullish ending stocks number by increasing bean production in Brazil and world stocks. This will affect the market at harvest's peak in March, making tight old crop stocks an old memory as demand here in the US shifts to South American ports.

At some point soon we should expect old crop year delivery to fade and maybe go minus as China cancels previous orders and re-buys in Brazil. If the price falls a dollar or more, big cancellations will occur but only a marginal pullback in prices would keep China taking delivery of our old crop but not buying large new quantities.

There can still be a problem with Brazilian logistics as they don't have enough port space to handle the crops and they are already talking of their annual dockworker strike on February 18. Dock and truck strikes are short-lived, as those are among the highest-paid workers' jobs.
The rest of the week limited to short covering or profit-taking. Unless something enters to change fund trading psychology, you have to expect our seasonal pre-US-planting low to occur by the end of March.

Here's the bearish notes: One, the 15 day weather outlook in Brazil and Argentina has adequate rainfall. That takes us through the month end and 80% of the key yield development time in South America. Two, the February 21 USDA Outlook conference will show that the US government expects increased corn and bean planted acres this year. Then the late March planting intention report by the farmers will be expected to show farmers intend to plant record corn and bean acres. The next seven weeks will reflect the record South American corn and bean harvest, the government and farmer intentions to plant record crops, and weather permitting record production.

Note: the low achieved prior to April 1 should be bought for an index and trend following funds weather premium rally into summer. Funds will commit a large portion of their portfolio seasonally to the grains.

Technicals read like this. May corn support 6.80 then 6.70 with resistance 7.20 then 7.40. May bean support 14.10 then 13.90. Resistance 14.50. May wheat support is unchanged then 7.20 with resistance 7.60 then 7.75.

For those who have questions on grains or would like to open a futures trading account at Alpari and use me as your broker, call me at 312-470-1112 x3304 or e-mail timothy.hannagan@alpari-us.com.

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