March Corn: Double Top or New Leg Higher?
The chart displayed is the daily chart for March 2021 corn futures. While the impressive export demand pace thus far -- total corn commitments up 179% versus a year ago and 56% of the yearly USDA export projection -- the U.S. still has an adequate carryout and funds are now long over 270,000 contracts. The potential for bullish weather in southern Brazil and Argentina, along with the possibility that China may continue their torrid buying pace, provides a bullish tailwind for corn.
The potential double top shown on the chart at $4.22 1/4 could be the sign of a corn correction, or could be another stepping-stone to higher values ahead. Demand and weather would seem to side with the bulls on the resolution of this question. However, a change in weather and/or a slowdown in China buying could send the heavily spec-laden market southward. But for now, the bulls remain in control and the corn market is not yet overbought.
Kansas City March Wheat:
As in March corn, Kansas City March wheat is also showing a potential double-top chart pattern, having backed off the $5.86 area for the second time. Also as in corn, Kansas City wheat is reacting to a weather market currently with all eyes on Russia and parts of Ukraine, where drought has compromised yield potential. Unlike corn, the world currently has plentiful wheat supplies with the October WASDE revealing a new, record-large world ending-stocks number, which is expected to change little in Tuesday's November WASDE report. On the heels of the recent rally to new highs, U.S. wheat is overpriced relative to the competition.
Without a resolution to the dryness plaguing eastern Ukraine and southern Russia, wheat will likely seek higher levels. If rain or snow does fall in the Black Sea, one might expect the wheat market, where funds now hold a 45,000 contract long in both Chicago and KC, to fall from here. Conversely, a rally and close above $5.86 to $5.87 is likely to lead to a new leg higher.
December Soybean Meal:
Just as in March corn and March KC wheat, December soybean meal is currently showing a double top on the charts. After rallying an incredible $113 per ton in just three months, it is possible we could see a correction.
Fundamentally, soybean meal has rallied on strong demand, dryness in South America and the willingness of Argentine farmers to hold onto their soybeans as a hedge against inflation. The latter has in effect sent business back to the U.S. from the world's No. 1 soy meal exporter.
Over the next few weeks, China demand and South American weather will likely determine if this double top can hold. A solid close above $393 to $394 will certainly lead to another leg higher. The soymeal market is not yet overbought.
Dana Mantini can be reached at firstname.lastname@example.org
Follow Dana on Twitter @mantini_r
Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of grains and grain futures involve substantial risk and are not suitable for everyone.
Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of commodities or commodity futures involves substantial risk and are not suitable for everyone.
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