Apparently U.S. grain producers were resilient in their determination to plant Corn this season, despite the cool wet weather seen in parts of the Midwest this spring, as the USDA forecasts the second largest Corn acreage since just after World War II. Tuesday morning's highly anticipated USDA June acreage and quarterly stocks report gave grain traders and analysts quite a surprise, with government forecasters estimating this year's Corn plantings at 87.035 million acres. This was up over 2 million acres from the March estimate and nearly 3 million acres above average analyst estimates. If true, this would be the second largest Corn acreage in over 60 years. Adding to this seemingly bearish news for Corn traders, the USDA also forecast that U.S. Corn stocks totaled 4.266 billion bushels as of June 1st, up nearly 250 million bushels from this time last year. The biggest surprise was the amount of Corn planted in Illinois, the second largest Corn producing state next to Iowa. The USDA predicted Illinois farmers planted 12.3 million acres of Corn, up 0.2 million acres from last year, despite a delayed start due to wet weather. On Monday afternoon, the weekly crop progress report had the U.S. Corn crop rated 72% good/excellent, up 2% from the previous week and 11% above last year. If growing conditions remain ideal this Summer, many traders believe the USDA may increase its yield estimates, and a near record U.S. Corn crop is certainly not out of the question. The acreage given to Corn production was taken from Soybeans, which desperately needed the additional acreage, as old-crop U.S. Soybean carryout totals are expected to be extremely tight this season.
Given the diverging fundamentals between Corn and Soybeans this season, especially for old crop futures, some traders may wish to explore inter-commodity spreads as possible trading opportunities. An example of this-type trade would be buying August Soybeans and selling September Corn at a 1:2 ratio (buying 1 Aug. Soybean contract and selling 2 Sept. Corn contracts). The goal would be for the price ratio to widen. Traders should be aware of the risks involved with this type spread and also recognize that this trade may not necessarily be less risky than an outright long or short position in the given commodity, as it is possible that one side of the position could trade higher and the other side lower at the same time
Looking at the daily chart for December Corn, we notice traders were in a selling mood after the USDA report propelled Corn futures down the 30-cent limit all the way out through the July 2010 contract. The July 09 futures (which have no limits) fell nearly 40 cents lower in early trade. Momentum was already weak for December Corn, especially once the minor uptrend from the December 5th lows was broken last week. Prices are now well below both the 20 and 10-day moving averages, and it appears that the 20-day MA wants to cross below the 110-day MA -- which is a bearish signal. However, the 14-day RSI has moved into oversold territory, but with large speculative accounts holding a fairly large net-long Corn position (according to the most recent Commitment of Traders report), it may take further long liquidation before an upward price correction will occur. The next support point for December Corn appears at 349.25, with resistance at last week's highs of 411.25.
Mike Zarembski, Senior Commodity Analyst