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Rich Nelson: Fundamentally bearish

08/20/2010 @ 3:53pm

Corn:  This week the US recorded the largest export sales report in 16 years. Big daily sales were also reported to unknown destination, Egypt, Japan, rumors of China and indications that we have won South Korea back. Rumors that Russia will buy over 5 mmt of “grain” and increasing chances the US crop will be disappointing all contributed to bullish enthusiasm. Funds were large buyers this week. One fund was credited for buying nearly 12,000 in the last 60 seconds on Friday’s close. Obviously they wanted a good chart close for the week and they got it. Fridays close was the highest daily chart close since January 11, 2010 and was about 9 cents higher for the week. 

Crop Tour: After the close, the crop tour pegged yields at 164.1 bushels per acre (bpa) and a crop size of 13.290 billion bushels. This compares with USDA’s latest estimate of 165 and 13.365. The tour’s numbers are higher than the trade had expected as most were thinking 159-162 based on the state reports that the participants were reporting throughout the week. The main problems associated with nitrogen loss combined with heat stress resulting in tip back, short ears and small girth. These problems combined with the reported population issues of flooding were reasons traders braced themselves for a very sub-par yield. We would have to guess that futures will open lower Sunday night.

Yield Survey: We will be completing the Allendale Farmer Survey at the end of next week. If you have not already completed a survey, please do so by either calling our office or online at www.allendale-inc.com .  Anyone completing the survey will get the results before the public. In the past, this has been a very accurate assessment of the crop. Obviously with the wide variation that is out there, the larger the number of participants the more accurate it will be.

Direction: Technically Dec corn will need to clear 438 resistance in order to keep the ball rolling. Failure to penetrate through 438 will likely lead to some long profit-taking and farmer selling. Seasonally, the market tops by August 10 and so far the 438 high was put in on 08/05. If this high remains in place, then the current rally is simply confirming that the summer high is “in” and the chart will develop a double top. Strong demand and reduced yields will need to occur if this high is to be taken out. Fundamentally we are bearish based on our assumption that the yield is +164 but our survey will shed tremendous light on that. Key support is at 405 and there should be good buying against this area. If this is taken out, then the uptrend is broken and we would expect to see massive long positions begin to exit. We sold into the rally this week and will not risk much since the trend is still up. Producers (hedgers) are completing all box strategies for a cost of 6-20 cents for the 2010 crop and some have poked at some “flat price” sales (futures) on this rally. We are also seeing some great profits locked in with a BOX on 2011 at a cost of 10-26 cents (today the 450-500 box was 22 cents). If you have any questions about this, call us – we are normally in the office until 9pm Monday-Thursday…Bill Biedermann

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