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A muted market response

06/06/2013 @ 3:02pm

First of all, we confess we are in the middle of the wet spot in Iowa. We know many people who have planting issues. We have been talking to clients on a regular basis to help them figure out their options.

Having said that, the corn market’s response to the wetness has been fairly muted.  The rally was from $5.30 to $5.70 in the December futures contract. Right now, prices are in the middle of that range. Not too many traders care!

How come? The May USDA report had a crop size of over 14 billion bushels, with use at almost 13 billion. Carryout was estimated at 2 billion bushels. Keeping this simple, take 3 million acres off harvested acres. With a yield around 150, the crop is 13 billion bushels and with a yield of 158, the crop is 13.7 billion bushels. Now, cut back demand (as many are doing) to 12.5 billion bushels. Carryout becomes 1.2 to 1.9 billion bushels. In the corn market’s mind, that’s plenty!

Next Wednesday, the USDA will issue updated supply/demand tables. With no surveys to assist them, they only have the option of lowering yields to reflect the perception that the crop size is getting smaller. Regarding demand, they certainly can lower feed/residual use. Plus the corn export picture continues to disappoint, and there are several exporting countries with cheaper corn available (or new crop wheat). Although no one is talking about estimates yet, this planting season has put more importance on the June 28th reports -- both grain stocks and acreage.

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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