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Rich Nelson: Closing corn and hog commentary

02/07/2011 @ 8:25am

Closing Corn Commentary

Fundamental Support: Yesterday the corn longs had taken their profits making this market less subject to the selling seen in other grains today. Japan bought 101,000 tonnes of US corn this morning helping to keep this market higher through most of the day. Late session buying came in that may have been more expected on Monday rather than late today. Rumors circulated around about China buying from 3 to 9 million tonnes of corn from the US once again but that was not the cause of the rally. These rumors have been circulating for weeks now so until we actually see a purchase made by China, these will simply remain guesses. Buying by “unknown” will not be enough either. Granted, if you do see even one purchase from China themselves, this market is likely to see a strong bounce. Technically this market doesn’t need to see a Chinese purchase to get up to 700 March levels. There is still nothing on the chart to cause corn to stumble on its way to the round number resistance of 700. Next week will give us new supply/demand numbers on Wednesday where there is a good chance at seeing corn stocks fall once again. For now there are plenty of reasons to be bullish, just keep the China buying excitement at bay for now until we actually see a purchase from them. Being bullish for the reasons at hand will be good enough, let’s just make sure not to chase some of these rumors.

Direction: Buying that may have been expected next week was instead found today. There is likely to be a continuation of that buying Monday before trade slows on Tuesday ahead of the supply/demand report. It is unlikely that large scale selling would come in before a USDA report, as recent reports have been on the bulls side. Ryan Ettner

Panic Supply Levels Yet?: Last night’s discussion of stocks/use brought some good questions from clients. We showed how we expect ending stocks to tighten next week. Stocks/use, the best measure of tightness of supply, will decline from 5.5% to 5.2%. Other sources in the industry suggest we are getting close to 5.0% 1995/96 levels. Technically that is correct. It must be noted that 5.0% number is the final estimate. Those high prices in 95/96 were actually made on tighter numbers. As the chart shows, we are now estimating 2010/11 stocks/use to be lower than the entire 2008 grain rally. We are not at the tightest point seen in the 1995/96 rally though. We are not yet at panic levels. That would also imply this wide basis will not narrow in that quickly. Rich Nelson

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