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USDA right on yields

05/12/2012 @ 1:08pm

Both old and new crop corn saw high volume selling Friday. 

New crop corn broke $5 and was below that level for the first time since Dec 17, 2010. Stop shoppers came in and bought the sub $5 corn to instantly turn December back up for now, but in the long term, a major door has been opened to a continued grind lower. Corn was subject to “light” fund selling Friday, partially moving in sympathy with heavier fund exiting of beans. Of course, the other major part of Friday’s selling was the bearish report from yesterday. Hitting sub $5 stops could actually offer a short term bounce. We have a hard time looking for a major bounce unless weather turns for the worse, which is not in the extended forecast right now. Funds do not have nearly as much corn to sell as they do beans but when they typically liquidate longs in one market, they do it for all markets. This puts more pressure on old crop corn than it does new crop. Old crop traders should remain highly cautious of continued fund selling as they will be selling July more than any other contract. Buyers in old crop should try to make their stand close to support where next chart support is at 568 1/4. New crop hedgers should look to take full advantage of bounces. Only major weather concerns should cause hedgers to hold off selling moderate bounces. Next week can see a bounce if funds slow their selling. Watch the dollar closely now as a bounce in that market could continue grain selling again next week…Ryan Ettner

USDA is Right on Yields: You can make some legitimate arguments with some of USDA’s numbers from yesterday. Their % harvested estimate is a record (too bearish), their feed and residual use estimate is too high (too bullish), and their export estimate is too low (too bearish). One thing which should be taken seriously is their yield estimate. When they raise it from February to May, based on good planting progress, they are usually right. In the six years where this happened before, yields ended close to the big May number four times. It takes a big swing in weather from here on out to move yields (2004 and 2010). The long term forecast for May – July is normal temps and normal precipitation. Early planting, new genetics for 2012, and perfect weather should make for record yields. Our target remains $3.80 for December corn...Rich Nelson

Trade recommendations:

(5/10) Sell December corn 535, risk 550, objective 505.

Working trades:

(5/11) Sold December corn 499, risk 515, objective 460. Closed 506 ½. Early sales in Colorado at $121 are steady with last week. That would imply Kansas through Texas at $120 which would also be steady with last week. Last official bid/offers are $119/$121 so it seems reasonable. Another piece of fundamental news out Friday, March foreign trade, held slightly bearish news. Though beef exports did rise from February, they were a full 21% under March of last year. We should run a little under last year, as is our production level, but that amount is a little concerning. For price direction we cash cattle to be range-bound from $119-$121 for the next two weeks then fall to $116 for a summer low. In other words, summer futures are priced where they need to be…Rich Nelson

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