Corn Traders Cautious Ahead of USDA's Outlook Forum

February 22, 2012 03:06 AM

What Traders are Talking About:

* Big corn acres, production expected. USDA will release its first projections for the 2012-13 marketing year at its Outlook Forum Thursday and Friday. Traders are expecting USDA to use the baseline projections released last week as part of the budget process, meaning USDA would project planted corn acres at 94 million -- 2.1 million acres higher than last year. And traders are also expecting USDA to use a long-term trendline yield, which would project to a record crop.

The long and short of it: Talk of a big corn crop projection from USDA's Outlook Forum is likely to keep corn traders very cautious toward the long side of the market near-term.

* Morgan Stanley exits July/Dec. corn spreads. Investment firm Morgan Stanley said Tuesday it was closing long July/short December corn spreads it originally established on Dec. 21. In a research note, the firm said, "We are less convinced that news flow will be supportive in the coming weeks, with ethanol production likely to slow and South American production estimates stabilizing for now. We are growing increasingly concerned over (2012-13) crop prospects as early-season moisture deficits develop across much of the northern corn belt. Similarly, increased competition from soybeans and higher winter wheat plantings will make it harder for corn planting to reach the consensus estimate of 94.2 million acres." As a result, the firm sees the old-crop/new-crop spread tightening in the coming weeks.

The long and short of it: If there's strong bull spread unwinding, it would be a signal the corn market has run out of upside momentum.

* China's manufacturing sector contracts for fourth straight month. China's HSBC flash PMI increased to 49.7 in February from 48.8 last month, but remained below the contraction level of 50 for a fourth consecutive month. The new export orders sub-index dropped to 47.4 -- the lowest in eight months -- from 50.4 in January, signaling the economic slowdown in the euro-zone is taking a bite out of China's manufacturing sector.

The long and short of it: With China's key manufacturing sector continuing to contract, there are increasing expectations China will take further steps to ease monetary policy in an attempt to avoid a hard landing by its economy.


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