Fear of USDA Data Overshadows Chinese Corn Purchase Talk

March 29, 2012 01:22 AM

What Traders are Talking About:

* Fearing USDA data. Traders appear to be very concerned about getting caught long corn heading into Friday morning's Prospective Plantings and Quarterly Grain Stocks Reports. The planting intentions data is widely expected to show corn acres up sharply from year-ago, with many guesses above 94.5 million acres and a fair amount of analysts seeing corn acres at 95 million or more. As for quarterly stocks, that's the number traders have really grown to fear as they've consistently missed (and by a wide margin in some cases) on their trade guesses dating back to June 2010. The result has been an active round of long liquidation this week, led by funds. Through the first three days this week, funds have sold 39,000 contracts (195 million bu.) of corn. On the flip side, funds have a lot of length in the soybean market and there appears to be little concern about carrying big long soybean positions into the report data. While soybean futures faced a corrective pullback yesterday, there doesn't appear to any major urgency to actively lighten long positions.

The long and short of it: The sharp drop in corn prices ahead of USDA's report data lowers the odds that there will be a bearish surprise and increases the chances there will be bullish price response. Conversely, recent price action suggests the odds of a bullish surprise in soybeans is limited.

* China buys U.S. corn, but how much? Rumors China bought U.S. corn circulated through the corn market yesterday. Most of the talk centered on private Chinese firms buying six cargoes (around 360,000 MT) of U.S. corn at about $320 per ton out of the PNW for May and June delivery. There's also talk that private Chinese firms may be shopping for more U.S. corn -- some say another four to five cargoes; others say another six to eight cargoes. Reuters is reporting China National Grain and Oils Information Center confirmed purchases of five cargoes this week by southern feed mills as U.S. prices are nearly $25 per ton cheaper than they can move domestic corn from northeastern production/storage areas. It seems very likely Chinese feed mills booked some U.S. corn and are likely to book more soon.

The long and short of it: Despite all the Chinese purchase talk, buyers remain skittish. That's a clear indication traders are fearful of getting caught long going into USDA's reports Friday morning. But it could also mean there will be a bullish price response after USDA's data is released -- if the numbers aren't highly bearish.


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