Farmers, check your bins
Market Summary: Originally posted Friday
Corn: This morning's news that China was restricting monetary policy was viewed as bearish for all commodities. For the second time in a month (January 12), China ordered banks to increase their reserves by 0.5%. Large banks are now required to hold 16.5% and small banks are at 14.5%. This move was made to help slow the country's growth and the potential inflation it may cause. Their government indicated lending in January, equating to $200 billion, was 20% of the country's lending target for the entire year. Again, in one month (8% of a year), banks already had lent out 20% of the entire year's target.
Indirect Ties: Really, there will be no change in corn demand whether China's GDP grows by 9% or 6%. There is an indirect relationship though. A lower growth in China could mean lower than expected demand for commodities for their building and industrial boom. That means lower demand for crude oil and other energy products. Corn is tied directly to energies through its ethanol. We must remember, the value ethanol returns to corn changes directly with the price of unleaded gas and other energies.
Corn Sales: This morning's weekly export sales report was within expectations. Earlier this week, USDA dropped their estimate of total year sales by 50 million to 2.000 billion bushels. After compiling recent weeks of sales, it appears they will need to lower exports again next month. Year to date corn sales are down 11% from normal. USDA's export hope, at 2.000 billion bushels, is only down 4% from normal. That means, to meet USDA, we miraculously have to run 9% better than normal from here on out. The problem is, the last three weeks have run from 4% to 43% under normal. USDA will have to revise exports lower again next month.
Changing Its Tune: Last Thursday's announcement from the EPA about corn being cleaner than gasoline was important. Tuesday's supply/demand report brought US ending stocks down from 1.764 to 1.719 billion bushels. On the March supply/demand report USDA will release its re-survey of corn left in the field. We would guess they will revise corn production lower by 50 to 100 million bushels. They will offset some of that with a 25 to 50 million bushel reduction in exports, as detailed above. That means, in March, it is possible to see corn ending stocks dip into the 1.6's.
Markets Closed Monday: In observance of President's day, there will be no trading on Sunday night or Monday during the day. Trading will resume Monday night.
The Message: Today's bad China news but resulting rebound by the close was further proof bulls are taking a more active approach. It also reaffirms our neutral (not bearish) market viewpoint. While corn has stopped going down, it really has not gone up yet. It is hard for bulls to take over this market. There will be a good deal of cash corn being dumped on this market soon. Warmer temps will bring on spoilage. Also, the trade is concerned about acreage. Allendale estimates planted acreage will increase by 4.4 million in 2010. A second firm estimates they will be up 3.2 million. USDA's thinker's will give their take on acres next week, on the 18th and 19th, at their outlook conference. To get bullish, May corn needs to break this week's 376 3/4 and last week's 379 1/2 highs. We are neutral.