This information is provided by Archer Financial Services, Inc., 800-933-3996.
The week started with the resumption of a corn sell off that began a week ago. It was a break that picked up steam as the week went on. The corn markets slipped $.53 from its high on Monday morning and finished its break on Thursday over $.70 lower than its high of just under two weeks ago.
The main catalysts were an increasing bearish outlook for new crop corn values as well as aggressive fund liquidation. The last three stocks reports were followed by limit down moves in the trade.
It seemed that the market focus going into Friday’s report by the funds was to reduce position sizes, so as not to get blindsided four times in a row. Even the stalwart soybean market grudgingly participated in a correction this week, falling nearly $.40 from its early week highs.
Although Friday’s report did reveal a bearish new crop corn acreage figure, it was the new crop soybean acreage estimate as well as bullish grain stocks figures that stole the show. May corn finished the week with a limit up trade, yet the close was slightly lower for the week.
This week’s dramatic technical sell off in the corn was done while ignoring solid demand news. It was reported that China had purchased up to 6 cargoes of U.S. corn.
Meanwhile favorable profit margins returned for the ethanol and livestock industries. These are factors that the market will not be able to ignore going forward, in light of the lower stock estimate released on Friday.
In addition, the transfer of 40,000 contracts from the funds to commercial hands argues for more solid support on the next sign of weakness. Over the past six months, the corn market has seen signs of rationing as spot corn values approached the $6.75-$6.80 level. This will be an immediate target for old crop corn values next week.
However, this week’s break may have made the rationing process more difficult as effective end users were able to lock in corn prices at profitable margins. This could lead to a more acute old crop corn rally towards the $7.00 mark over the next few months.
The May/December corn spread may move out toward $1.30. This would provide new crop hedging opportunities above $5.60. Producers should be pleased about this most recent price recovery, but should not be overly anxious in this market.
(click the charts below to enlarge)