July corn was trading 3 3/4 cents higher late in the overnight session. China futures were up 0.4% overnight. Outside market forces look mixed. Open interest is coming down rapidly since the April 18th lows with talk of some short-covering helping to fuel the recovery bounce but the break yesterday appeared to be long liquidation selling. The technical action in futures is weak but the cash markets remain strong with Decatur at 40 over July and May at 10 over July. At this point, traders do not expect much in the way of deliveries but large traders are moving out of the May into the delivery period. July corn closed moderately lower on the session yesterday after first trading moderately higher. Funds were noted as aggressive sellers of near 12,000 contracts on the session. The market followed the soybean rally and then got a boost near the opening due to more active sales announcements from China. However, similar to Tuesday, there was buy the rumor, sell the fact type session which pulled the market lower on the day into the mid-session. Slower ethanol demand and weaker wheat prices were also seen as negative forces. Fears of a surge in production for 2012 remains as a bearish force. Private exporters reported a sale of 420,000 tonnes of US corn to unknown destination for the 2012/13 season. In addition, exporters reported a sale of 262,500 tones of US corn for China. Of the sale, 90,000 was for the 2011/12 season and 172,500 for the 2012/13 season. Ethanol production for the week ending April 20th averaged 865,000 barrels per day. This is down 2.15% vs. last week and down 2.04% vs. last year. The May USDA report will be the first look at the 2012/13 ending stocks. Traders see stocks near 1.8 billion bushels for the May report as compared with 801 million bushels for the 2011/12 season. At the outlook conference, the USDA used a yield of 164 bushels per acre and with early plantings, many have adjusted this yield even higher. The USDA has a history of lowering yield estimates with late plantings and raising estimates on early planted corn. Trendline yield for this season should be near 160.5, not 164. After the recent China bookings, the USDA seems to be in a position to need to raise old crop exports by near 50-150 million bushels and then lower ending stocks. For the weekly export sales report, traders see corn sales near 900,000 tonnes from 298,000 last week.
The market does not seem to have the weather to move much higher in the December contract and traders view the May 10th new crop supply/demand update as a reminder of the “potential” bearish set-up for the coming year. However, supply expectations may reach a peak if the USDA uses a 166 or higher yield and demand expectations may also be too conservative with China already an active buyer. China weather and the global economy will be key forces for the coming season and it looks way too early to assume that a good
start the planting season translates to higher than trendline yield.
CORN (JUL): Momentum studies are still bearish but are now at oversold levels and will tend to support reversal action if it occurs. The market’s close below the 9-day moving average is an indication the shortterm trend remains negative. The market tilt is slightly negative with the close under the pivot. The next downside objective is now at 588 3/4. The next area of resistance is around 609 and 621, while 1st support hits today at 593 and below there at 588 3/4.
StockMarketNews Research Team