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Roy Smith: Only in marketing

Looking at the comments on the “Marketing” talk page, after this morning’s report, could be a study in psychology! Only in marketing would a report that did not change the numbers from the last report be considered bearish. 

First reaction to the report is that it is very negative to prices because the trade was anticipating a sharp reduction in projected carry over.  Later response is that the government numbers are wrong. That attitude leads to the possibility that traders will be looking to buy a lower opening that may or may not come to pass.

The 675 million bushel projected carryover leaves the supply situation very tight. The fact that the trade was expecting 586 million bushels makes the psychology negative, but does little to relieve the tightness of supplies at the end of the marketing year.  The price at the end of the trading day, today, will indicate if traders believe the government numbers or continue to trade the potential of running out of corn before the new crop becomes available.

Before we become too excited about today’s report, we need to weigh two factors that many people will overlook. The first is that the cash corn bid jumped dramatically in the five days following the March 31 report. Here in Cass County, NE, the bid went from $6.13 on March 30 to $7.21 on April 5. That jump of $1.08 includes five cents basis improvement. The basis change, when the futures market is making sharp moves, is a clue of when to sell. Seeing basis improve when the futures price jumps more than a dollar certainly does not indicate that demand is slowing. On the other hand, cash corn over $7 is a good price any way you look at it. 

The second factor that should not be overlooked is that the seasonal trend has a strong tendency to peak out in early April. My 20-year seasonal chart of December corn futures shows a peak on the sixth trading day of April. That is today. The chart shows the price dropping gradually for a while but rebounding into another peak around June 14. My experience from studying these patterns is that in any given year price movement can be very volatile. Especially in years when fundamentals are very tight, price action can be sharply higher and sharply lower within very short time period. 

A factor that concerns me is the bullishness of the trade before this last report. I talked to a broker yesterday who told me that no one wanted to go into today’s report short the futures market. Market tops come when everyone seems to be bullish. As I am writing this column, I am also listening to the opening grain markets. At this time, reaction to the report is not as bearish as originally indicated. The price at the close is all important!      

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