Two weeks ago we noted that should rain accompany the heat dome that entered the Midwest that it would signify a classic “buy the rumor sell the fact” in both corns and beans. That is exactly what happened as heavy rains accompanied the heat with significant widespread totals though the heart of the Midwest growing regions. November beans have fallen over $1.40 from high to low in the last seven sessions. December corn fell 47 cents in the same time period. Wheat reacted like the tail following the dog falling 41 cents from high to low. However wheat recovered nicely Friday posting solid gains amid poor harvest results so far in France and the European Union. The situation is worth following as non commercial and non reportable funds entered this week short over 100K Chicago wheat contracts.
The E.U. is the second biggest net exporter of wheat and quality and condition issues have spurred a rally in Paris futures of about 13 percent for the month. Also of note, Argentina's wheat production will increase in 2016-17, but not by as much as had been thought. The U.S. Department of Agriculture cut production to 13.7m tonnes their harvest forecast. The downgrade, to a figure 1.3m tonnes below the official USDA forecast restated last week, reflected lower expectations for sowings, which are being held up by "unusually wet conditions" in key central Argentine growing areas, the bureau said. Argentine farmers had been expected to ramp up wheat output to the highest in five years or more in 2016-17, lifting export prospects too, thanks to the greater incentive to sow the grain provided by the ditching by the country's new government of export taxes and quotas on the grain.
The question moving forward will be will Russian and Black Sea harvests which appear to be ample make up for the shortfall in the EU and Argentina? Or will it make U.S. wheat more competitive for global business particularly from number one world buyer Egypt. With both K.C. (hard red) futures and Chicago (soft red) both sitting under 4.50 per bushel on the board basis December, it could attract more buying since multi year lows for both contracts were achieved just this week for Chicago and earlier in the month for K.C.. Volume declined on the last two price breaks to the low 4.30’s signaling the lows could be in for a while for both these contracts. Should funds look to cover their massive short position on the Chicago contract, a 50 percent Fibonacci retracement comes in at 4.90 December futures which would be a near term target to the upside.
Technical’s read like this for next week. For November beans support is down at 9.46, and with a close under 9.04 is next. Resistance is up at 10.50 and then 11.12. For December corn support comes in first at 3.28 and then 3.15 Resistance comes in at 3.59 and then 3.77. For December wheat support comes in at 4.34 and then 4.19 Resistance is up at 4.60 and then 471.0.