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Has Corn Demand Peaked?

March 12, 2011

 

 A significant liquidation all week was justified with Thursday’s WASDE (World Agriculture Supply and Demand) report from USDA.

Money left the market throughout the week ahead of the report that showed no significant positive news. That lack of anything bullish sent commodity prices tumbling on Thursday and Friday as the March corn contract fell nearly 64 cents for the week. Soybean and wheat prices followed suit.

"The excuses from the floor, and they usually come up with something after there is liquidation, was that funds were getting out. And in particular about the agriculture outlook was that there was nothing negative, but there wasn’t anything positive either," says Jerry Gulke, president of the Gulke Group.

"The trade viewed the fact that we didn’t increase feed or ethanol usage as a signal that we’ve peaked demand," he says. "Of course, we still have the supply side to figure out, but right away the thought was that if we’ve peaked the demand side, we may have a lot more later on."

Now the attention is turning to the March 31 acreage report. Gulke says many in the trade believe the numbers will come in around 92 million corn acres, but they also believe it could reach as high as 94 million with the June report.

Friday’s earthquake in northern Japan also added to the market tension. Japan is the largest export market for U.S. corn and the trade is questioning how much that demand will be upset by the earthquake and the following tsunami.

"Will they need any corn to feed their hogs? There’s just a lot of uncertainty and people just got out of the way."

Despite the significant downturn in prices this week, the bull market isn’t necessarily over. The low-side resistance levels still remain from a technical trader’s perspective.  It’s also not new to this marketing year, he says.

Lows were tested in September. After testing the low-side of the trend line, the market rebounded and moved significantly higher. "We’ve tested it numerous times and violated it several times in November. You can never say never, but you can’t say for sure this party is over unless you look at that trend line. Today in December corn we managed to close above that trendline."

However, to move to new contract highs in this market, Gulke believes we will need to some significant production challenges this growing season. 

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