Will There be Some Surprises in the USDA March Crop Report This Year?
Fundamentals
The March USDA Crop Production report is typically greeted with a big "yawn" by grain traders, because normally the final previous year's production is already known, and traders are more eager to see the estimates of the next crop year's prospective planting intentions that are reported at the end of March. However, Mother Nature put a twist in this year's report, as the USDA is expected to revise its 2009 Corn and Soybean crop estimates due to the lateness of this year's harvest -- including some areas where the Corn crop has yet to be taken out of the ground. Traders are expecting the USDA to lower the size of the 2009 Corn crop by between 30 and 70 million bushels from the 13.151 billion bushel estimate in January. However, traders also expect the USDA to lower U.S. Corn demand estimates due to lower U.S. export projections, as a stronger Dollar has hurt the competitiveness of U.S. Corn in the world market. Traders are expecting the USDA to leave U.S. Corn carryout for the 2009-10 season near the 1.719 billion bushel estimate from its January report. Also affecting U.S. Corn demand is the concern that the late harvest has affected the quality of the Corn crop in some areas. In addition, South American producers are expected to harvest bumper Corn and Soybean crops this season, making both Brazil and Argentina strong competitors in the export market this year. New crop corn futures will be watched closely by traders, as warm and wet weather forecasts for the Midwest could cause localized flooding in some areas of the Corn Belt -- especially given the snow cover in the upper Midwest. Concerns that a wet spring will once again delay Corn plantings should give some support for December 2010 futures, particularly if it appears that planting delays will be lengthy enough that some producers switch from planting Corn to planting Soybeans, which have a shorter growing season.
Trading Ideas
Since the sharp sell-off seen in Corn futures following the January USDA crop report, July Corn futures have traded in a relatively narrow 35-cent range. USDA reports have historically been a catalyst to trigger major moves in the grain markets, and some traders may wish to wait until the report is released to see the direction the market moves once the report is out. Given the recent trading range in which corn has been stuck, some traders may wish to investigate entering a trade in the direction of a price breakout outside of the recent range. An example of this trade would be placing an OCO order (one cancels other) to buy July Corn above the recent highs at 402.25 on a stop, and an order to sell July Corn below the recent lows of 368.75 on a stop. If one side of the order is filled, the other side of the OCO order will be cancelled. At this point, a trader may possibly wish to place a stop loss order 10 cents below recent highs of 402.25 if the buy side of the OCO is filled, or 10 cents above the recent lows of 368.75 if the sell side of the OCO is filled.
Technicals
Looking at the daily chart for July Corn, we notice that prices remain well below both the 20 and 100-day moving averages, giving Corn bears the upper hand. The 14-day RSI has begun to trend lower, with a current reading of 41.41. Support remains at the February 5th lows of 368.75, with resistance seen at the highs of the recent trading range made on January 13th at 404.50.
Mike Zarembski, Senior Commodity Analyst
