By Jonathan Barratt
The grains complex has been mixed over the last week with wheat and corn off and soybeans up. It looks like this week will be the catalyst for movements as we have the quarterly USDA grain inventory and planting intentions report due this Friday. Of late the quarterly reports have been erratic and have proven to reveal surprise numbers. This month's data will be no different. We expected weakness across the board last week and this has helped our short corn position. As for soybeans, we have been stopped out.
We are currently trading close to our US625 target from last week. Technically, it looks as if we have broken daily trend line support with a daily close below US638 confirming this. At the moment it looks as if intentions will be high and with the prospect that farmers will be planting the largest crop since 1944, expect the market to remain weak. On inventories we are looking for 7.10 million bushels based on best estimates. Of interest will be the number of acres on offer and what grain is competing for them so keep close to the screen on Friday.
We remain short corn with a stop in at US675.
Wheat has held up remarkably well and this has been attributable to the dry conditions in Western Europe. The market also received a lift on the back of solid export demand from China. China bought 350,000 tons of Australian wheat for feed, as prices for corn were just too high. This order also hit corn prices as wheat was substituted. At the moment Australia has a lot of feed wheat due to rain damage last December. Wheat is trading in a wide range with US675 on the top and US625 on the downside. Momentum indicators are mixed so we will be sidelined until the USDA report on Friday before making any decisions.
This has been a tough trade for us. We had been short the market based on technicals and some moisture relief in Argentina, however the rain appears to be too late. We continue to receive reports of reduced supplies. In addition, strike delays by truckies in Argentina caused further issues and the commodity snapped back. China weighed back into the market by securing two cargoes. So far this year China is on course to import 25% more in the first two quarters of this year than in 2010. We still may have another look at shorting the complex however, as of yet we have not pulled the trigger.
We have been long cotton for sometime having weighed into the Leveraged Cotton (LCTO) contract. We continue to suspect a low is in place for the commodity. Cotton is currently trading on a three week high on the back of tight supplies and steady demand. The talk around the traps is that the US Government is likely to raise its estimates, which could lead to a fall in inventories. In addition, talk of dry conditions in China, the world's top producer, is helping to support the market.
Technically, we have good support at US87.25 and if we can break through US93.50 we expect further gains. Keep an eye on weather forecasts from China.
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