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Rich Nelson: Buy rumor, sell fact

03/25/2011 @ 5:44pm

Fundamental Support: Buy the rumor sell the fact was the main issue facing the corn today. After the hard slide lower last week, rumors circulated that China bought over a million tonnes of corn. This was one of the main factors for this week’s quick rebound. This morning, a confirmed sale of 1.25 million tonnes of corn was made to “unknown”. Trade had no problem assuming that purchase was indeed China. There is little surprise that buyers from last week buying the rumor were more than happy to sell the fact today. Add in the fact that today is the last Friday of the month/quarter and there was room for profit taking. Today’s close does not paint a bearish picture with 182,000 contracts traded in the May corn with a final trade of only 12 lower. That shows sellers were plentiful today while buyers were almost completely up to taking the other side. Many more contracts changed hands than longs liquidated. There was already hints to talk that some may look for China to buy even more now thanks to this sale today. Rumors of China buying corn had circulated for months with one confirmation. A question on everyone’s mind is if speculators will want to put themselves long again for another rumor. For the week, May corn ended up 4 3/4 cents which is still technically up trending. Looking forward to next week, the May corn has opened the door for a push to contract highs of 744 1/4 as long as the acreage report allows it. Bulls will look for a lower than expected acres on Thursday’s report, bears will obviously look for the February numbers to stay the same or be higher. Hedgers were given a second shot at December contract highs this week and may get a third look at it before the report next week. Hedgers who have still held off to this point should, in the least, have a plan ready to put in place as the acreage report could cause high volatility next week.

Direction: Profit taking could have been expected to end the week. Technically these grains have opened the door to higher trading. Volume may also be down ahead of an unsure report so look for nervous trade unless the funds come back in with more buying.

Grain Stocks: Last night we covered our estimates of demand from December to February. That estimate was used to make our March 1 quarterly stocks estimate. We indicated that Feed, Seed, & Industrial (includes ethanol) and the export categories are relatively easy to guess. The hardest category to estimate is feed use. Tonight’s chart shows how erratic USDA feed numbers were last year. Did feed use really go from 14% under the previous year level in Dec-Feb then jump to 36% over the previous year level in Mar – May? Will USDA keep the same lack of reason this year? This is the category that concerns every grain economist right now…Rich Nelson

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