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Inflated China talk?-Rich Nelson

05/13/2011 @ 4:40pm

Fundamental Support: Rumors circulated around the corn market yesterday that China had come in and bought 1 million tonnes. The claim was that it was to be split between old and new crop. By this morning, that rumor had been expanded to 4 million tonnes. When USDA announced new exports this morning they said that 271,000 tonnes of new crop corn was sold to “unknown”. Once again this market had set itself up for disappointment by claiming extremely large numbers that were very unlikely. Many were left hanging on rumors like this in the past and only one proved to be true. What may have been more important today was the dollar was breaking resistance levels. That could show a turnaround. Recent comments from Europe are causing the Euro to be sold and in turn, our dollar to be bought. We all know when funds are heavily invested in corn; a turn in the dollar always holds the chance for liquidation. Taking this whole week into consideration, here is what we are looking at: 1) New crop supply side fundamentals are bullish. Yield will be lowered again and acres will be lowered by the end of June. 2) Old crop demand side fundamentals are bearish. Ethanol production and exports have slowed recently. 3) Funds are a wild card but a significant bounce in the dollar as seen lately would suggest a bearish influence as well. For now, no one is arguing against lower yield and lower acres, it is just that the bearish factors are outweighing those still uncertain bullish factors.

 

Direction: There is still room for a short term bounce but the bearish factors are outweighing the bullish ones right now. Monday trade will see a planting progress which may also weigh on the bullish factors…Ryan Ettner

Chinese Buying: The chart above shows that imported corn generally is higher priced than that traded on the Dalian Commodity Exchange. When the premium fell under 500 yuan per tonne the, Chinese government bought US corn in mid-March. The deal was officially announced on March 25th. We are 100% convinced about China buying this time. Though the premium has fallen below 500 yuan, it is not near the same low level as seen in March…Rich Nelson 

 

Working trades:

 

(5/4) Sold December corn 800 call 32, risk 42, objective 19. Closed 21.

 

 

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