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Corn bulls need fed-Rich Nelson

06/10/2011 @ 3:15pm

The trade was looking for a little profit-taking setback and in the December futures market that is exactly what happened Friday. 

Now that we have a carryout that suggests 710 new crop price, it is hard for December to move very far from that level. July on the other hand is seeing more speculative and nervous trade. There is talk that some areas are bidding up big for July cash corn trying to get their hands on it. That was enough talk to get some speculators active today just enough to run July up to 799 ≤. While the news was enough to put on some short term speculative buys, it was not enough to break the 800 level. Next week will give corn a new weather forecast and we will see if the corn bulls will have new material to buy from. For this market to continue higher there must be additional news to convince buyers to show up. We need to loose more acres, loose more yield, or increase demand to get buyers confident in running December past economic value. Until then we are likely to see trade continue just as it did today with moves over 710 being sales and under being buys. Yesterday’s bull move came while adding 15,000 contracts to open interest showing that even at these prices, buyers are still here. Weather had no changes today still suggesting a generally good forecast through the month of June. Bears will have to hold off getting too excited unless December falls back below 700. Bulls will need additional news to get others to jump in with new long positions.

Direction

December will continue to gravitate towards 710 for now unless we see a major change in news. Recent talk of the need to bid up on short term corn needs will add support to old crop even though carryout was left unchanged. Sideways to slightly higher trade can be expected to continue for now.

It is unusual for USDA to change acres on the June supply/demand report. We wondered if USDA was usually right in doing that compared with the results from their farmer survey coming on June 30. The chart here shows they were really “right” on their proactive approach in one of the past three years…Rich Nelson 

Trade Recommendations:

 

(6/9) Buy December corn 697, risk to 687, objective 722.

(6/10) Buy December corn 702, risk 698 ≤, objective 715

 

Live Cattle: It was nice while it lasted. Cash cattle gained $1 this week on a live basis at $105. Dressed sales were up $2 to $4. At the same time wholesale beef prices have tanked by $6. Those wonderful kill margins from last week, which modeled out at $67 per head, are now down to $7. Look for packers to be a bit tight fisted on spending next week. At the same time that cattle buyers are getting orders to tighten up on spending we are getting evidence that those big December placements are now coming to town. This week’s cattle kill was 3% larger than last year. One client of ours connected to the packing industry notes next week’s kill is lined up for a significant increase over this week. 

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