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A different world-Ron and Sue Mortensen

07/01/2011 @ 7:24am

With the release of the USDA reports Thursday morning, the world of trading ag commodities changed 180 degrees.  Shortage became excess, too little acreage became more than expected, bullish became bearish. 

Both the corn stocks and the corn acreage numbers were bearish, leading July corn to trade down 69 cents (since July corn is in the delivery period, it trades with no limits).  December corn was down the 30 cent limit and is projected to trade an additional 35 cents lower Thursday night. 

Since the corn market spent the day limit down, traders flooded the options pit, and the volume of puts bought and calls sold was significant in an effort to minimize losses from long futures positions.

Analysts that do the math with the stocks numbers came up with an incredibly small feed/residual number for corn during the quarter ended June 1st.  Did price really do its rationing job in the March-May period?  There are other versions of the story to consider-did the USDA get the previous March 1st number right?  Is there really a crop size issue to deal with-was the 2010 crop larger than estimated?  Or is the quality of the corn such an overwhelming factor that feed efficiency was off the charts? 

The issue of wheat feeding still needs to be considered, although it did not seem to happen in this quarter.  Wheat stocks were also larger than analysts’ predictions at 860 million bushels.  Soybean stocks were also slightly larger than the pre-report estimates.  Perhaps the bullish number was the soybean acreage, although bean futures were lower as prices did not have the strength to move in opposition to corn and wheat. 

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The risk of loss in trading commodities can be substantial.  You should therefore carefully consider whether such trading is suitable for you in light of your financial situation. 


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