Located at the Chicago Board of Trade, Advantage Grain is a specialized division of MF Global focusing exclusively on the grain and livestock markets. Read their latest market commentary.
Aftermath of Yesterday's Report...
Jul 01, 2011
· Grains mixed overnight; Dec corn down another 38+ cents after yesterday’s limit down performance
· USDA dropping a bombshell yesterday; Find 1.6mil corn acres since the June crop production report, essentially the same acreage lost from March to early June
· Stocks numbers from the USDA bearish across the board; Corn stocks at 3.67bil/bu vs. avg trade guess near 3.3bil/bu
· Soybean numbers mostly neutral; Losing 1.4mil acres since June Crop Production and stocks only modestly higher than the avg trade guess
· Wheat numbers bearish; Keep in mind that funds are short wheat already and that the majority of long liquidation is behind us
· China purchase of 1.6mmt of US corn on Wednesday clearly insignificant relative to USDA numbers
The USDA really dropped the ball on this one. The Crop Production Report from a few weeks ago did nothing but confuse the market and create a false supply/demand outlook. As this type of nonsense from the government continues, producers in particular need to exercise extreme caution when approaching these reports as anything truly is possible these days. Sure, the government may eventually lower corn acreage again due to a variety of factors; but it doesn’t matter right now. The market plays the cards it is dealt from the USDA and will continue to do so until another report is released. So, right now we have huge acreage, big stocks and benign weather. Not very bullish.
The highs in corn may be in for awhile, however this market is far from over, in my opinion. There is still a huge degree of uncertainty surrounding corn and soybean production this year. We haven’t seen any July or August weather and it seems that, still, no one has a grasp on the acreage situation. In this age of fund driven markets, moves such as this are usually magnified. This means that corn may move much further to the downside on this move than most would expect simply because of fund activity.
A couple of things to note, after yesterday’s madness:
1) Call options are cheap. Volatility is down.
2) $6 corn and $13 beans are still expensive.
3) Wheat might be getting too cheap (especially spring wheat)
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