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Macros sink corn

06/01/2012 @ 3:21pm

Closing Corn Commentary 

Broker Perspective: While fund trading remained quiet in corn again today, the spreaders were very active. Before the 9:30 opening there was violent outside market news which caused most markets to panic and the spread traders did in corn as well. Outside market news caused the dollar to spike down which instantly turned spreaders to buying July and selling December. Other contracts of corn followed mid-day when the weather forecast once again suggested cool and dry followed by warm and dry. Later in the day wheat began to sell aggressively which carried over to corn selling as well. A tough week of exports helped to lead corn lower today. Trade was looking for a drastic slowdown in sales down to 450,000 tonnes and instead this week saw 280,000. Rumors circulated that China bounce 300,000 tonnes of old crop overnight but of course there was no confirmation of that. That overnight sale is tough to believe as we know China is typically a buyer of only new crop corn. In the coming days we will add this rumor to the list of things to watch for corn but will probably give up on it by mid-week if nothing is confirmed. Next week we will keep a close eye on weather forecasts as well as spread trading. These two factors have led to the largest moves recently and we look for that to continue being the case. Funds were estimated long 79,000 contracts which keeps the possibility alive for fund selling but remains much more likely to be seen in beans first. December corn continues to stall out near 530 as it did once again today. Large support is still expected around the 500 level and breaking that would paint a bad technical picture for new crop. Old crop is still subject to violent spreading and should be avoided as a weather related trade.

The Facts on Moisture: Central Illinois was the center of last year’s extra heat during pollination. It is also the center of this year ‘s dryness. Year to date precipitation is 33% under normal. In just May, it was 49% below normal. The next two weeks will also hold below normal precip. Allendale does feel yield will likely tick down a little more than our end of May estimate of 163 this month. Again, while respecting the yield decline, it must be pointed out it is not yet enough to stop 2012 from seeing a huge crush of supply. Adding in the negative sentiment from outside money over commodities and we must say rebounds here will be minor.

Working trades:

(5/10) Sold December corn 535, risk 550, objective 505. Closed 510.

Lean Hogs Commentary

The past month has been a clear game changer in trade psychology for hogs. Traders now feel supplies are back on their normal pace of declining numbers into summer. In 2011 the smallest non-holiday week for pork production was on August 6. The smallest non-holiday production week in 2010 was July 31. This is why futures have some healthy premiums over the current $84 lean hog index (the two day average of cash hog prices). Since the market has changed to our way of thinking, supplies will decline in the coming weeks, our $90 upside target has been reached. Another positive thing we must note here is that the premium end of the chicken offerings, chicken breasts, are continuing their price gains. Since spring rolled around retailers have been featuring chicken hard. Almost every weekly grocery circular features chicken breasts right now. Wholesale breast prices are a full 16% higher than last year. That should give pork a little breathing room. For price direction our $90 objective for summer futures has been reached. We are now neutral. We will hold from discussing hedges until $93.

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