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Published October 03, 2011, 07:22 PM

Third quarter ends on defense

The third quarter of the year ended on the defensive.

The third quarter of the year ended on the defensive.

For soybeans, the month of August was an outside range, with a higher high and a lower low, which had taken out the previous three months of lows. Then, after new contract highs, soybeans went to the downside on a host of reasons that led to the lows of August being violated.

December corn followed a similar pattern. After USDA increased soybean yields in its September supply and demand report, it increased Sept. 1 stocks from 151 million bushels in the same period last year to 215 million bushels this year. While down 10 million bushels from the average guess, the stocks still were forecast nearly 42 percent greater than last year. Take that number and add the near-record amounts of soybeans on hand going into Argentine planting season and I guess we can understand the reluctance of soybeans from trying to stage much of a short covering bounce.

Funds sold 15,000 contracts of soybeans Sept. 30, and sold a net 5,000 contracts of soy oil futures and 5,000 contracts of soymeal. Note: Aug. 31, November soybeans traded at 1465 and one month later, the price has traded down $2.90.

Logic says this type of pace should not keep up, but I would look for soybeans to push at the lows again, with a low around Oct. 4 and a short covering rally into the Oct. 10 USDA supply and demand report. It is in that report that traders anticipate a better view of harvested acres, along with yields. Furthermore, it may be that the better yields are from the earliest-planted crops. Could the coming weeks bring in a different picture of yields? The later-planted corn no doubt dealt with heat. Talking to clients from Nebraska, irrigated corn in central Nebraska was going for 15 percent less than normal.

While still great crops, they was less than the farmers in Nebraska thought they would be getting. Soybean yields were wonderful for both dryland and irrigated.

For corn, the month of September was rough, with a $1.75-per-bushel decline.

Funds Sept. 30 sold an estimated 30,000 contracts of corn. The quarterly stocks report threw farmers and traders a bearish surprise, with ending stocks at 1.128 billion bushels, which was above the September supply and demand number of 920 million bushels — an increase of 208 million bushels. That implies that feed usage was the lowest on record during summer.

What is perplexing about that is it coincides with low wheat feeding. USDA does not have enough funds to be able to separate distiller’s dried grains, therefore, they are included as corn. Keep in mind, DDGS is a byproduct of ethanol from corn. Could this skew the numbers of corn stocks? What is next for corn?

The trendline of 604 was violated Sept. 30 with a close at 592 ½. This trendline came from the lows of November. For the bear, I would expect the July low of 575 ½ should be looked at — quite possibly the 554 level. On a Fibonacci retracement from the lows of June 2010, a 50 percent retracement is 562 ½ based on the December contract. However, if we take the retracement from the lows of December 2008 based on the December corn contract, a 38 percent retracement comes to the Sept. 30 low of 592 ½. A 50 percent retracement working off of the December 2008 low is 535. Therefore, being the optimist here, the velocity of this decline makes me think the market can go lower, but maybe the decline will slow.