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NEAR-TERM MARKET FUNDAMENTALS: The USDA data showed a larger than expected supply of corn in the US and with lofty expectations going into the report and a hefty speculative net long position, a long liquidation trend is feared over the near-term “if” South America weather forecasts turn more normal. Big rains this week will stabilize crop losses but it will be important to see more rains by late next week and into next weekend in order to avoid further losses. March corn traded for just a few minutes yesterday before locking down the 40 cent limit. The market stayed limit down for the first two hours of trade and then saw a 2 1/2 cent trading range near the mid-session. The USDA data was very negative for grain stocks and production data and this helped spark aggressive selling from speculators and producers early in the day. The USDA pegged ending stocks for the 2011/12 season at 846 million bushels which was down two million from last month but near 100 million bushels above expectations. Final production was pegged at 12.358 billion bushels, up 48 million bushels from their previous forecast and up near 95 million from expectations. Yield was 147.2 vs. 146.7 previous. Exports were revised higher by 50 million bushels which was one of the few bright spots for the report. World ending stocks were pegged at 128.14 million tonnes from 127.19 million last month and trade expectations near 123.5 million tonnes. Argentina production was revised down by 3 million tonnes to 26 million and Brazil was left unchanged. Some traders believe South America production is down at least 10 million tonnes from December expectations and not the 3 million from the report. December 1st corn stocks were pegged at 9.642 billion bushels which was up 250 million from trade expectations. Weekly export sales for corn came in at 321,500 metric tonnes for the current marketing year and cancellations of 23,000 for the next marketing year for a total of 298,500 tonnes which was well below trade expectations. Cumulative corn sales stand at 59.6% of the USDA forecast for 2011/2012 (current) marketing year versus a 5 year average of 53.9%. Sales of 493,000 metric tonnes are needed each week to reach the USDA forecast. Demand news is mixed but there appears to be increased interest in Australia feed wheat. The Philippines bought 55,000 tonnes of Australia feed wheat for May shipment.
TODAY’S GUIDANCE: With the large spec net long going into the report and perceptions that US producers have not sold a lot of old crop or new crop corn, selling pressures could resume next week “if” the January 21st to 26th rain event in Argentina looks fruitful. In other words, it will take positive weather news to avoid further selling pressures next week.
TODAY’S MARKET IDEAS: Short-term resistance for March corn comes in at 627 with 609 3/4 as a near-term pivot price. Support emerges at 600 and 586.
Commodity Outlook – 2012.01.23
by Dave Hightower on January 21, 2012
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So far, 2012 has seen a better than expected chain of events than might have been expected at the end of 2011, as Euro zone fears have tempered slightly, there have been indications that China could be in the process of shifting away from a tightening stance, and US economic activity has continued to give off signs of forward progress. Certainly the floating of surging European debt will be a long, drawn out affair that could at any time serve to yank the rug out from under the markets, but so far the take-down of their debt has gone favorably. It is possible that the markets are starting to settle on the idea that Greece might be allowed to fail and in turn be forced from the EU. While that event will most certainly foster significant volatility, it could end up being the de facto end of the Euro crisis. On the other hand, with even a moderate improvement in macroeconomic conditions in the Euro zone, it could become increasingly more difficult to spark full-blown anxiety events, and that more than anything could speed the crisis toward a favorable outcome. Recent suggestions from the US Fed seem to indicate that the US will remain supportive of the global economy, even in the face of improvement in the job market and, more surprisingly, even in the face of an increase in near term inflationary pressures. In other words, some members of the US Fed are acknowledging the severity of the Euro zone crisis, and they are apparently willing to increase the risk of inflation pressures in the US in order to facilitate a return to global stability.
So far, 2012 has seen a better than expected chain of events than might have been expected at the end of 2011, as Euro zone fears have tempered slightly, there have been indications that China could be in the process of shifting away from a tightening stance, and US economic activity has continued to give off signs of forward progress. Certainly the floating of surging European debt will be a long, drawn out affair that could at any time serve to yank the rug out from under the markets, but so far the take-down of their debt has gone favorably. It is possible that the markets are starting to settle on the idea that Greece might be allowed to fail and in turn be forced from the EU. While that event will most certainly foster significant volatility, it could end up being the de facto end of the Euro crisis. On the other hand, with even a moderate improvement in macroeconomic conditions in the Euro zone, it could become increasingly more difficult to spark full-blown anxiety events, and that more than anything could speed the crisis toward a favorable outcome. Recent suggestions from the US Fed seem to indicate that the US will remain supportive of the global economy, even in the face of improvement in the job market and, more surprisingly, even in the face of an increase in near term inflationary pressures. In other words, some members of the US Fed are acknowledging the severity of the Euro zone crisis, and they are apparently willing to increase the risk of inflation pressures in the US in order to facilitate a return to global stability.
From a physical commodity market perspective, it might not take much forward movement in the global economy to see many commodity prices rally in 2012. We would suggest that commodity markets in general have already seen a healthy liquidation of speculative long positions (as can be seen in a chart of the composite non-commercial and nonreportable net long positions for non-financial commodities). Therefore, we think that the risk to longs in markets like silver, copper, platinum, rice, cocoa, natural gas, and soybean meal might be somewhat limited in the months ahead.
Traders should not underestimate how important China is to several physical commodity markets. In addition to their possible shift to an easier monetary policy stance, China will also have a noted impact on commodity markets that receive fresh demand from restocking efforts. Those include corn, soybeans, sugar, cotton, copper and pork. In the near term, the best leading indicator for many commodities might be the action in the Shanghai stock market, which appears to have managed a bottom with the action in early January. If the equity market action isn’t convincing enough to declare a turn up in the Chinese economy, one might simply look back to China’s four record monthly coal import readings over the last year as evidence that their economy has retained its capacity for forward motion.