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Watch out for China -- Rich Nelson

12/10/2010 @ 3:56pm

It is generally thought that the December report does not make much of a wave in the markets. For once, things turned out as expected. 

USDA raised corn carryout slightly to 832 million bushels. This is 5 million bushels more than the number they put out in November. Of all places, this increase to carryout came from raising corn imports 5 million bushels. That takes a very small number on the balance sheet and increases it slightly. Imports were 10 million in the last report and are now 15. 

All other numbers were left alone. With the large amount of traders still bullish this market, it was able to come back from a lower start to actually finish in the green. Obviously, the next main factor to watch out for will be China, over the weekend. But, today showed that beans and wheat are more affected by China than corn looks to be. That makes good sense when you look at the graph below showing how much corn China buys from the US over the last 15 years. As it shows, last year they bought 1.5 million tonnes which is about 60 million bushels. 

In the grand scale, that is not an overly impressive number and is also the most we have seen in over 10 years. Keep this in mind when talk about China’s economy is circulated.

It may affect other markets greatly. But, the largest affect on corn would simply be to follow other markets and not be a significant change to the corn carryout. This helps to explain corn strength today when other markets were weak and will continue to function this way through additional China talk.

Direction: A good strong close on a somewhat bearish report shows that corn can continue its slightly higher trend. There may be some reaction to China’s raising interest rates but it would most likely come from following beans rather than any changes in the underlying bullish carryout number. We should look for the recent trend to continue with a couple speed bumps along the way…Ryan Ettner


Trade Recommendation:

·       (12/10) Stand aside.

Fundamental Support: Thursday night, a chart of forecasted low temps was posted. It was done to put a visual of the conditions producers are looking at on Sunday and Monday. Often at very cold temperatures producers will not want to turn the hog barn into an icehouse during loading. Another issue is the basic action of fighting hogs out the open door and up into the loading chute. Along with cold temps there will be snow. Five to ten inches will fall in the far northern Corn Belt. Heavy snows, on unplowed country roads, are an issue not just with hog deliveries but for packing plant employees.

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