27 May 2009

Much of the focus the past few months has been on the turmoil in the financial and equity markets, but in the meantime, there have been sizeable moves in both the grain and softs complex. These markets have been responding to pure supply/demand issues and have not been subject to the day to day reports which sometimes make the financial markets too choppy to decipher. The trend remains up in July Soybeans. The trend turns down on a trade through 975 1/4. Based on the strong close this market is in no danger of changing the trend to down and is on target to reach a major 50% retracement price at 12.23. A huge surge in global demand continues to erode U.S. supplies. Last week exports were up 4.6 percent to 16.993 million bushels. Exports were also up 21 percent from this time last year. Soybean exports are expected to continue to rise with the greatest demand coming from China. At this time speculators see no slowdown in demand. Supply issues may also help contribute to gains if weather problems become an issue this growing season. Demand is the providing the greatest support in the short-run with supply expected to contribute to gains over the long-run. Another long-term factor supporting a bull market this year is the USDA forecast for a drop in inventory on August 31 to 130 million bushels from 205 million bushels. Look for buying opportunities on dips if possible. The market may get toppy around 12.23 but a change in trend to down is not expected. The trend remains up in July Corn, but the rally has become labored at the 4.34 area. A close above this price targets 4.49 1/4. Minor support comes in at 4.20. The trend will remain up unless 4.06 1/4 is violated. July Corn has been struggling lately to break through 4.34 mostly on speculation that farmers accelerated plantings which had been delayed by rain. Improving prospects for a close to normal output this year is leading speculators to shave their long positions. Corn plantings are still behind schedule but there was good fieldwork progress this weekend. This is the main reason why traders are taking some of the weather premium out of the price. July Wheat remains in an uptrend and in no danger of turning lower, but could begin to feel corrective pressure. The trend turns down on a trade through 5.63 1/4 while retracement zone resistance remains at 6.09. Speculators may be easing up on their long positions in anticipation of an upturn in the U.S. Dollar. A rise in the Dollar will cause foreign investors to ease up on demand for U.S. wheat. Rain pushing its way across the Midwest may limit losses as traders assess any planting delays to the new crop and harvest delays to the winter wheat crop. Additional selling pressure may surface as timely rains have reached dry areas in Australia. This event may help improve current crop conditions. July Sugar may fall in the short-run on reduced demand from India. The Indian government has banned the use of new forward contracts. Futures trading may be halted next. Excessive speculation in these two financial instruments is being cited as the reason for the ban. India has become a net importer of sugar this year because of a failed crop. The government must think it’s a secret to the rest of the world and has been doing all it can to limit a rise in price due to speculation. Earlier in the year it banned the import of foreign sugar, now it is banning forward contracting. Each attempt to curtail a rise in price will only make the market increase even further later in the year. At this time this market is struggling to maintain its uptrend with resistance forming at 16.03 to 16.05. On the downside, the trend turns lower once 15.11 is violated. Longer-term traders may want to use 14.90 as their main bottom. A break out over 16.05 will indicate speculation will continue in this market. A failure at current levels will mean the move by the Indian government to lower speculative interest will work in the short-run. No one knows how long the ban will last, but at some time later in the year, India will have to return to the open market which will drive prices higher once again. July Cotton has fallen sharply since posting a new high for the year at 61.67. Based on the main range of 48.33 to 61.67, look for support to begin to build at 55.00 to 53.43. For most of the year, July Cotton had been rallying lock-step with July Soybeans. Bullish fundamentals including increased demand from China and fewer planted acres had been providing all of the support this market needed. The bad news hitting the market lately ironically has come from China. While China was importing U.S. cotton, it was experiencing tight domestic supplies. This event has caused China to auction some of its reserve in an effort to ease supply concerns. Look for July Cotton to begin to find support in its key retracement area once the tight supply issues are alleviated. July Coffee continues to surge to the upside supported by both technical and fundamental factors. The trend is up with the nearest swing bottom established at 124.85. The weaker Dollar has contributed to increased demand along with a major drawdown in inventories. The biggest drop in supply has come from Latin America. Additional support is anticipated from a slowdown in sales from Brazil. Farmers are expected to hold back on sales of this year’s harvest while they assess the impact of a government announced price support program. Longer-term traders have a reason to press the long side as Columbian output is expected to fall 8.7% to 10.5 million bags this year.

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