Reaction After the Report
Jun 11, 2009
I know you’ve heard it before, but today was one of those classic report days. We got a bullish report. Bean carryover at 110 was right at trade expectations. The projected 2009 corn carryover was reduced to 1.09 million at trade expectation. The market opened higher. After the first hour of trade, the market started losing steam and then the correction started. It’s the saying I’ve heard since starting in the business: bullish report/bearish reaction.
The problem now is the trade has had time to adjust to the assumption of tight old crop beans and potentially bullish new crop corn fundamentals. I would suggest that while painful for recent bulls, today’s correction is not however an end to the bull trend for corn and beans. We still have the potential of lots of excitement in June and July. I believe the developments in the dollar, energy values and weather will hold the key to how explosive price could be.
The next big report is the acreage report due out the end of the month. The trade expectation will be for increased bean acres and reduced corn acres. This would set up the potential for the July USDA Supply and Demand report reducing carryover well below 1 billion bushels. The implication is that sometime between now and next July corn is going to have to ration usage. The extent of the ration is what’s going to be the big debate.
So what do I expect? I would not be surprised if speculators wait to the end of the week (say, a three-day correction) before they start to buy for the rally in corn into the end of the month. My suggestion is to buy December corn but with a limited risk. As for the bean market, my focus would be to sell rallies in the November beans. Finally, for wheat it’s not pretty. The stocks are increasing and harvest is right around the corner. I would focus on selling wheat off the combine and then reown on paper.
In summary: One has to expect that bulls will be looking to buy new crop corn while the bears will be looking for sell rallies in new crop beans. I would not be surprised to see many traders sell wheat and buy corn additionally for the next few weeks. Finally, as one concerned grain producer asked me, what happens to the livestock market, especially the hog market? With the potential increasing that corn costs are going to stay high for most of the 2009 season and fear quite high about swine flu, the potential is quite high that another strong round of herd liquidation will develop this fall to early winter when we confirm the phasing out of more inventory.
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