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– This weeks strength looks to have come from the widespread ‘dismantling’ of China’s zero covid policy. Reports suggest that they have already scrapped their covid tracking app and experts there are advising that the government speeds up its approval process for updated vaccines in a bid to increase their immunity and allow the nation to fully open up. Just the prospect of the world biggest buyer coming back into the market at the pre covid rate of buying is enough to push the market higher so the fact that it is slowly starting to happen could mean this rally isn’t quite finished yet.
– However, any rally is likely to be short lived with the Brazil’s record breaking crop looking increasingly likely. This months WASDE was uneventful for the grains with no changes to US and South American crop figures, despite Argentinian drought affecting their crop. The arrival of the South American bumper crops next year is likely to put a hold on any major rallies going forward.
– Argentina’s drought looks to be the worst in decades with some scary sights across the landscape with lagoons dried up and cattle dying in the fields. This is clear evidence of the effects of the La Nina weather phenomenon which tends to mean limited rains in Argentina’s growing regions. Having already heavily effected the wheat crop, severe damage to corn and soy crops is looking more likely. Some of the damage will leave land unusable for some time.
– Looking forward, there is very little rain forecast in the next 10 days which can be seen on the below image so things will likely get worse before they get better.
– The CFTC commitment of traders report from 06.12.22 showed that Managed Money added to their long positions by 8,080 and their short positions by 10,730. They are now net long 99,454.
– OR added to their long and reduced their short positions and are net short 6,391. NR reduced their long position and added to their short positions, they are net short 31,588 contracts.
– The January contract traded in a 57.4 cent range in what was a strong week for the commodity. Monday was fairly uneventful but the following three days saw strong double digit gains where the market broke above the 200 day MA and we saw the eventual high on Friday of 1492.6 which was well above the 61.8% retrace level. The market did come off from its high on Friday but found support at that retrace level which will look to offer support in the week ahead. Upside resistance lies around the weeks high which was hit back in September which we doubt the market will break above.
– Elliot Wave have changed their viewpoint slightly but still see near term strength with prices going as high as 1530 basis the March contract, in Q1 of 2023. However, they are expecting it to be short-lived and still see prices going to the 1170 level in mid 2023.
The market may continue to trend in this upward trend channel but we expect it to encounter overhead resistance fairly soon which we think will be followed by a downward move. With Brazil still looking set for a record crop we are bearish this market.
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