Heating Up:

The week is ending up as expected, with trend-following funds buying back short positions to  settle their month-end and year-end book balancing.  Prices are also supported by a stream of bullish weather reports out of South America.

WXRISK.COM, the weather site used by the agricultural industry sees a monster heat dome entering in South America, primarily in Argentina, bringing the season's hottest and driest conditions with the longer-term forecast potential for January to stay warmer and drier than normal throughout Argentina and Brazil.

Argentina is the world's second-largest corn producer/exporter, and last spring, it reached an agreement to sell more corn from its new crop to China. This agreement to some extent is in jeopardy. Argentina is into its key yield development time through most of January, when production is made or lost. The import agreement between Argentina and China has caused U.S. corn exports to lag last year's record pace.

Brazil - the world's number two producer/exporter of beans - sees its major southern growing areas starting to see early planted  beans entering their key pod setting stage, and the month from January 10 to February 10 will be do or die time for yields there.  Brazil has forward sold 76% of its bean crop, largely to China. This, too, is in jeopardy. The expectations of January bringing dry weather to these two major world corn and bean producing areas has begun to create fear that China may soon turn to the U.S. ports to overbook grains as a weather hedge.

This would suggest selling will be limited only to profit taking; traders will buy breaks until the weather changes, and only outside market weakness would cap gains, with U.S. grain stocks  at dangerously low levels entering 2012.

Any factors through the end of summer here that would lead to larger U.S. export demand will lower our ending stocks.

This week, I have filed only one posting, as I spent my time doing the forecast that will be published in the PFGBEST Research Outlook for 2012. (Receive it FREE by signing up at www.PFGBEST.com/Research.

As you know, my grain report last year accurately predicted the bull rally which accurately anticipated the rally would peak in the spring.  Hopefully this year's report will give you again, the  reasoning, timing and pricing to trade grain futures in 2012.

If the next two weeks stay dry in South America, March corn futures will test $6.58 resistance potentially as soon as next week. The downside risk is to $5.76 prior to or into the January 12 USDA crop report.

March beans see $12.40 resistance then $12.60. The upside target for March wheat is $6.85.

Remember, markets are closed Monday and will not be open Monday night on the Globex trading system. When we come in Monday, if this weather forecast holds true, we expect a sharply higher opening.

There is a substantial risk of loss in trading futures and options. Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. PFGBEST, its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report.