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Ron and Sue Mortensen: Corn demand from China?

03/17/2011 @ 2:37pm

Markets like these make traders’ stomachs churn, cause sleepless nights and cause many to say “just get me out!”  The massive Japanese earthquake sell-off actually followed a few days of negative price action due to a feeling that the USDA would report large corn numbers on March 31st

It has been two weeks since corn was on its highs and a little more than a month since the highs in soybeans and wheat.

Today’s rally is partially due to the “risk on” type of trade returning to the markets.  There are rallies in additional commodities beyond corn, wheat and soybeans--copper, cotton, rice, energy, etc.  Plus the dollar is sharply lower.  Just for added flavor, the equities markets are also higher and there were a couple of positive economic reports this morning. 

There is also a rumor running through the market that China has bought a small amount of US corn this morning.  As US corn prices declined in the past two weeks, Chinese prices remained firm.  Given their VAT tax and import tariffs, it seems US corn prices are not quite cheap enough, at least for old crop corn.  On the other head, for October forward, US prices are cheaper than Chinese prices-it economically works to buy US corn.

Remember there should be an acreage estimate out during Friday’s trading from a widely watched analyst.  Will there be a large increase in corn acreage as many thought two weeks ago?    

Finally, consider what has changed in the fundamental picture in the past week.  On the negative side is this pervasive feeling that corn acres and/or stocks will be high.  Also, there are indications some wheat is making it into feed rations.  On the positive side, overall poultry and livestock feeding do not seem to have been reduced.  Plus, both the ethanol producer and the blender are making substantial profits.

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The risk of loss in trading commodities can be substantial.  You should therefore carefully consider whether such trading is suitable for you in light of your financial situation.