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NEAR-TERM MARKET FUNDAMENTALS: Traders indicate that the corn market lacks much in the way of fresh news. A sharply higher dollar sent the corn market lower yesterday. Further weakness overnight in corn was accompanied by another modest gain in the dollar. This comes against a backdrop of improved economic numbers in the US yesterday and ongoing concern that sovereign debt problems in Europe will bring a continued flight to the dollar. Weekly export sales will be release tomorrow. Argentina’s Ministry of Agriculture raised its estimate of the maturing corn crop there to between 19 and 21 million tonnes. This is up 46% or more from last year and it is well above the latest USDA estimate of 17.2 million tonnes. Last fall, estimates had fallen as low as the 11-12 million tonne range due to lower planted area and the lingering effects of last year’s drought. A processors’ association in South Korea is tendering for 55,000 tonnes of optional origin corn for arrival on July 20th. Recent reports from Japan and South Korea have indicated concern there over quality issues with US corn that have arisen from the late, wet harvest this past fall. In the US, some fears have arisen that low-quality corn may even be getting rejected by some ethanol plants. If we assume that producers will plant 4 million more acres this spring and also assumed a slight increase in usage for the coming year due to the surge in ethanol production, a trend-line yield at 161 bushels per acre might cause ending stocks to decline to near 1.7 billion bushels, compared to 1.719 billion this year and 1.673 billion last year. A record yield would drive ending stocks to just over 2 billion bushels. However, if we were to assume a yield that is the average of the previous five years (152.4) then ending stocks could slip under 1 billion bushels, and the stocks/usage ratio would fall to just 7.4%, the second lowest in history. While lower yields are not expected, the exercise illustrates how important yield will be for corn values for the coming season. Reassuring reports from the EPA this month helped to confirm that corn-based ethanol growth is likely to continue over the next several years. In November, the US used a record 362.4 million bushels of corn to produce ethanol. In order to reach the new USDA ethanol use forecast of 4.3 billion bushels, the US needs to average 361.2 million bushels each month.
TODAY’S GUIDANCE: The corn market shows signs of wanting to test the early February low at 359 in the May contract. Weak technical action could carry the May to as low as 351. The slow pace of exports is not helping and one of the few positive factors could be the increased concern over quality issues for 2009/10 US corn which could provide a boost to higher quality deliverable stocks. However, this is a somewhat backdoor kind of ‘positive’ factor that does not support overall demand. December corn support is at 393 1/2 and 391 with 402 and 408 1/2 resistance.
TODAY’S MARKET IDEAS: Consider strategies which could benefit from a short-term downtrend followed by a rally.
Corn Market Commentary – 2010.02.18
by Terry Roggensack on February 18, 2010
Below is a sample of our Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!
NEAR-TERM MARKET FUNDAMENTALS: Traders indicate that the corn market lacks much in the way of fresh news. A sharply higher dollar sent the corn market lower yesterday. Further weakness overnight in corn was accompanied by another modest gain in the dollar. This comes against a backdrop of improved economic numbers in the US yesterday and ongoing concern that sovereign debt problems in Europe will bring a continued flight to the dollar. Weekly export sales will be release tomorrow. Argentina’s Ministry of Agriculture raised its estimate of the maturing corn crop there to between 19 and 21 million tonnes. This is up 46% or more from last year and it is well above the latest USDA estimate of 17.2 million tonnes. Last fall, estimates had fallen as low as the 11-12 million tonne range due to lower planted area and the lingering effects of last year’s drought. A processors’ association in South Korea is tendering for 55,000 tonnes of optional origin corn for arrival on July 20th. Recent reports from Japan and South Korea have indicated concern there over quality issues with US corn that have arisen from the late, wet harvest this past fall. In the US, some fears have arisen that low-quality corn may even be getting rejected by some ethanol plants. If we assume that producers will plant 4 million more acres this spring and also assumed a slight increase in usage for the coming year due to the surge in ethanol production, a trend-line yield at 161 bushels per acre might cause ending stocks to decline to near 1.7 billion bushels, compared to 1.719 billion this year and 1.673 billion last year. A record yield would drive ending stocks to just over 2 billion bushels. However, if we were to assume a yield that is the average of the previous five years (152.4) then ending stocks could slip under 1 billion bushels, and the stocks/usage ratio would fall to just 7.4%, the second lowest in history. While lower yields are not expected, the exercise illustrates how important yield will be for corn values for the coming season. Reassuring reports from the EPA this month helped to confirm that corn-based ethanol growth is likely to continue over the next several years. In November, the US used a record 362.4 million bushels of corn to produce ethanol. In order to reach the new USDA ethanol use forecast of 4.3 billion bushels, the US needs to average 361.2 million bushels each month.
TODAY’S GUIDANCE: The corn market shows signs of wanting to test the early February low at 359 in the May contract. Weak technical action could carry the May to as low as 351. The slow pace of exports is not helping and one of the few positive factors could be the increased concern over quality issues for 2009/10 US corn which could provide a boost to higher quality deliverable stocks. However, this is a somewhat backdoor kind of ‘positive’ factor that does not support overall demand. December corn support is at 393 1/2 and 391 with 402 and 408 1/2 resistance.
TODAY’S MARKET IDEAS: Consider strategies which could benefit from a short-term downtrend followed by a rally.
Tags: Corn, Grains
About Terry Roggensack