Thursday, April 7, 2011

Another Big USDA Report Tomorrow; I'm Thinking of Fading Corn on the Release (CORN; DBA; MOO)

The futures are down 1 3/4 cents at $7.6125 after opening up.
On March 31 we noted:
Yes friends, we're on the WASDE beat. It comes out on April 8th, here's the WASDE site.
Here's the March 10 report.
From DTN:
Watch WASDE for Corn "Ending Stocks

Friday's supply-demand report should show a lower domestic ending stocks number and stocks-to-use falling below 5 percent, reaching a new record-low, said DTN Grains Analyst John Sanow, on the heels of today's strong usage....
My best gut feel (and that's all it is) is that this will be the last positive news for all eternity (or 30 days, which in the pits equals the same time period).

This gut-feel is probably informed by three things:

The chart from Tuesday, note the big gap at $6.92 from the date of the last report:

cornfutures 624x222 Tuesday links:  new tricks

Secondly, this chart from Yesterday's Smart Money Europe showing the double top on the monthly:

That's not to say that we won't eventually go higher, just that this is a spot where markets might want to take a break.

Finally the small decline yesterday combined with the tentative action this morning reassures me that the giant traders, Cargill, Dreyfus, Glencore etc. don't have an advance read on what we'll see tomorrow.

One word of caution, The Smart Money article concludes:

...As a consequence, many traders and analysts have upped their price expectations. Recent surveying by Bloomberg showed a large percentage bullishness. For instance, Goldman Sachs raised their short-term price target to 8.6 USD/bushel (3 month), which would lift prices by another 13 percent in the next months.

Now, we would normally get reserved when seeing large numbers of bulls for a commodity. But with the current powerful fundamentals for corn, we also have difficulty to come up with bearish scenarios that could slam the price on a short term notice, black swan events left aside. The underlying pressure is just too high. Maybe corn prices of 9-to-10 dollars per bushel (or more) could provide some relief to the markets. Until then the price of corn will be popping on a regular basis. For now, sit back, relax and enjoy the movie!
Here's the World Supply and Demand Estimates site.
Win lose or draw, we'll probably have more to say on all this.