Buy the rumor, sell the fact.

- Steven Petillo

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October 31, 2007

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Grain markets across the globe have been marching higher in the face of nearly perfect harvest conditions. A weaker dollar and new records being made in the energy sector have sent corn and beans back to challenge recent highs and additional drought comments from Australia have put some bullish life back into wheat.

CBOT wheat has seen a recent build up of net short positions by small speculators while a modest gap in the December contract near 840’ combined with recent drought comments out of Australia give us more than enough reason to expect the market to trade higher over the next week or two. 960’ may not be a current target but 900’ is within range with a continued weakness in the greenback.

Corn and soybeans have seen impressive moves lately considering that the bullish information has been on a macro level. The weaker dollar and record crude prices are certainly positive influences but $10 beans ahead of a season where we are almost certain to see a rotation of corn acreage given back to beans? Weather conditions in South America are currently neutral and smart traders may be looking to sell rallies for the next few months. We expect traders to use any corrections in crude as a signal to hunt for short entries in beans over the next month or two.

CBOT corn looks to have more potential than beans over the next month. Although it has seen recent positive gains off the same fundamental influences beans have experienced, technicals look to have more potential and acreage rotation next season will eventually put a positive spin on corn, but possibly not until after the holidays. Corn may not get the high volatility of beans but 420’ on the December CBOT corn could be a good steady play in the next month. Like all commodity markets right now, a weaker dollar will continue to be a necessary positive force along with high crude prices.

Crude oil could see a stall in the next couple weeks as Mexican production levels come back online and traders work Iranian sanction premium fully into the market. We will watch for this expected break / stall in crude to give us the pull-back in corn we are hoping for and expect larger traders to build up longs going into November and December.

For both corn and beans, crop rotation will be an especially important factor this year. Make sure you get the latest survey numbers from your broker on a regular basis.

Technical levels currently come as follows:

If you cannot view the above chart, go here.

Steven Petillo has been in the futures and forex industry since the early 90's when he worked on the floor at the Chicago Board of Trade. Since then he has been the senior analyst and research director for FCMs and investment firms as well as a regular contributor to a number of different media and think tank institutions.

Mr. Petillo is now the president of Arc Capital Management, a brokerage firm dealing in futures, the foreign exchange markets and OTC markets with offices in Chicago and throughout Texas.

Introducing... ArcTrader Platform

Arc Capital Management has teamed up with the premier futures trading software company to offer the benchmark in electronic futures trading - ArcTrader. Combine the experience and market knowledge of Arc with the unparalleled excellence of the ArcTrader platform for a winning combination. Go here to learn more.