Those who took notes on last Fridays report know that this week laid out just as we scripted. We told you to expect a higher opening on Monday as the market would price in another round of harvest delays as heavy Midwest rains again were called for and an overnight and Monday opening rally occurred with corn up 4, wheat up 9 and beans 7 cents higher. But, we informed you to get ready for a sharp correction from the recent rally as two issues would combine this week to leave large funds taking long profits to the bank. The first issue was Index funds were required by law to reduce the size of their big long positions in the grains to meet the new smaller position limits. They had until October 30. Index funds entered this week long 190 thousand wheat contracts, 400 thousand corn and 149 thousand beans. This left room for ample selling. The second issue was Index funds and trend following funds were fat with profits and stood to pay themselves bonuses on profits taken, if taken before the month end. Corn was up 80 cents on the month, beans 1.50 and wheat 1.35. Funds came in this week with a paper in hand that said sell strength and go to the bank. It's the simple mechanics of the working market. It's a profit taking business. So, corn sold 50 cents off last Fridays close. Beans 67 cents and wheat 85 cents. Next week it's a little more complicated. But our goal is to get long prior what should be perceived to be a bullish November 10 U. S. D. A. monthly crop report. If we're lucky you will have one more correction to buy long but this can accure only if these issue enter early week. One issue is in place and that's a week of what Midwesterners call Indian summer. Next week the Midwest will be drier and warmer than normal. This will have harvest at full speed with commercial owned grain elevators lowering cash bids being paid to farmers delivering corn for sale. The next two issues to get a break in grains need to be a lower crude oil price early week and a higher dollar index. If these three issues all happen grains will push lower. December corn could push back to 3.60 with 3.52 and 3.44 as next supports .If 3.60 taken out, worst case scenario is 3.30 the long term trend line. Beans would test 9.55 with worst case scenario of 9.30 and December wheat 4.62 as worst case. If this break were to occur it would have to be by no later than Tuesday to Wednesday as late Wednesday thru weeks end we will be getting pre report trade estimates for the November 10 crop report and those are surely to feed a bullish tone to offset harvest and outside market pressure. If we come in Monday and the crude oil begins the new month higher and the dollar in lower, grains will rally and ignore harvest pressure. Index and trend following funds are portfolio traders. They don't know a bushel of corn from a phone booth or a bar of soap from a bar of gold and don't care. If crude is up and dollar down their inflationary mindset says buy the board. Everything from corn, cocoa, gold to cotton. If crude oil down and dollar index up they sell the board. But Wednesday thru November 10 grains will have a stronger mindset of its own to balance outside market influence and that's the fear of what the crop report may unveil. The fear will be that the last month of the growing season October being one of the coldest and wettest since 1885 and a hard freeze in the upper plains and Midwest frost will lead to a sharp drop in corn and bean production. A cut in production this time of year would have the report take production losses off the top of our corn and bean ending stocks. The fear is it could be 100 to 300 million bushels of corn and 20 to 50 million bushels of beans. It doesn't matter what the report actually says but the fear prior is what they trade. Traders will not want to be short but long into this report. In conclusion we may or may not start the week out lower but you know what to look for and understand why we will finish the week strong. Technical's read like this. Regardless of openings and fundamental reasoning. Buy December corn on a move thru 3.80. First support on a correction is 3.60 then 3.52, 344 and 3.30. Beans can be bought on a move thru 9.90 or if starts the month lower 9.55 is first support with 9.30 as worst case scenario. December wheat can be bought on a close over 5.08 or we have first support at 4.88 then 4.62.
Join the Discussion