Will the USDA report "amaize" Corn traders?
Fundamentals
Corn futures are little changed ahead of today's USDA supply and demand report. The report is expected to show the 2008-2009 carryout rising to 1.838 billion bushels, up from the 1.790 billion figure in the January report. With recent reports showing a sharp decrease in demand, traders have, for the most part, already priced-in bearish demand. That being said, it is unlikely that the report will show a low enough demand component to shock grain traders. The last three weekly export sales reports have eclipsed the 1 million metric ton mark, which is encouraging, but still remains well behind the pace of the previous marketing year. Firmer prices because of the strong export demand is a catch-22 for the market, as an up-tick in Corn prices could result in weaker demand. Domestic demand in the form of ethanol and feed demand need to significantly improve for traders to shift their bias to the bull camp. Ethanol plants around the country have been shutting their doors, unable to sustain their operations due to low demand and razor thin margins. Also, with the lowest cattle on feed numbers in 50 years, it is unlikely that feed demand will be able to lift prices. The market has largely priced-in a much smaller Argentinean Corn crop due to poor weather conditions. Estimates range from a reduction of the crop size by 1/3 to 1/2 of last year's 650 million bushel figure, which has helped avert a complete collapse in Corn prices. Today's supply and demand report is not expected to contain any shocking data, barring another severe cut in demand. The longer-term focus for traders will be the March 31st planting intentions reports. The expectation that Corn acreage will be severely cut because of unattractive pricing, high planting costs and low demand may buffer the downside until the report's release.
Technicals
Turning to the charts, March Corn continues to trade range-bound between 3.50 and 4.00. The 3.50 area may be more a significant level for traders, as contract lows would be the next logical stopping point for the market. For the market to gain upside momentum, prices would need to cross the 4.50 threshold. Short-term bias may favor the upside, as the momentum indicator is showing bullish divergence from the RSI indicator. Also, the 20-day momentum appears to be on the verge of crossing the zero line, hinting at a positive bias. As is typically the case, you can throw technicals out the window after the release of USDA data until the market normalizes, which can take days.
Rob Kurzatkowski, Senior Commodity Analyst
