Tight Cash Supplies at Play in Market

January 27, 2012 11:15 AM

This information is provided by Archer Financial Services, Inc., 800-933-3996.


It was a strong week for grain prices at the Chicago Board of Trade this week, but the real story was what prices were doing off of the exchange. 
Corn values were once again led by the old crop with March corn closing over $.30 higher for the week and December corn closing just shy of $.20 higher.  Soybean and wheat values rallied $.30-$.45 higher for the week.  The catalyst behind the strong trade to March corn was the unusually strong basis for this time of year.  Near term demand for corn continues to be strong, while producer sales continue to be limited. 


As of December 1st, the stocks report indicated that producers held only 50% of their inventory on farm.  The aggressive sales off the combine have led to more conservative sales for the second half of last year’s harvest. 
This tight producer holding has helped March corn to rally over $.50 from its lows following the negative January USDA Report.  Corn exports continue to improve with the current sales pace just 5% off of last year’s total, while the USDA is projecting a 10% decline.  The amount of corn used for ethanol production continues to outpace the USDA projection by as much as 150 million bushels. 
As corn values approach the January 11th levels, the day before the January report, they will be facing at least two important challenges early next week.  Cash basis levels, although slightly softening late in the week, continue to remain strong and indicate that prices have not yet reached a level in which producers are willing to aggressively reward the rally. This will need to be watched closely next week for any signs of change. 


The second hurdle for early next week is the technical resistance at the 100-Day Moving Average, which crosses at $6.42 ½.  The corn market has not closed above this critical moving average since September 21st of last year.  If the cash market remains strong and if corn can close above its 100-Day Moving average early next week, then prices may stage as much as an additional $.30 rally to March futures, while pulling the December contract above the $5.80 level.  A rally toward these levels will provide an excellent opportunity for producers to advance sales. 
Tight available cash supplies may continue to be a major market feature throughout the first half of this year, providing for wild swings in the markets.  It is important to have a plan to take advantage of this strength, while remaining flexible enough to step aside as the market trades down toward the lower end of value.



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