Grain Traders Await USDA Crop Production and Grain Stocks Reports
Today's Idea
Corn futures prices might be the most vulnerable to a sell-off, as the huge net-long position being held by speculators combined with relatively high Corn prices may trigger long-liquidation selling should the USDA report "disappoint " Corn bulls. There appears to be good support in March Corn at 595.00, and should this level fail to hold, there could be significant stop-loss selling below. Some traders may wish to consider selling March Corn at 594.00 on a stop, with a protection buy-stop at the recent high of 623.50.
Fundamentals
Grain traders set their alarm clocks ahead this morning, as few would want to miss the release of the USDA's Annual Crop Production and Grains Stocks report to be released at 7:30 am Chicago time. Many traders are expecting the USDA to somewhat lower the size of the 2010-11 Corn crop to 12.49 billion bushels, which is down slightly from the 12.54 billion bushel estimate in the December report. The lower crop size should also be reflected in the Corn carryout estimate, which is expected to decline to 780 million bushels. Soybean production is expected to remain at 3.375 billion bushels, but strong export demand is expected to decrease the 2010-11 carryout totals to a tight 158 million bushels. Winter Wheat seedlings are expected to have increased for the 2011 crop year, with expectations that just over 41 million acres were planted this season, which is up from the 37.335 million acres producers seeded in 2010. Wheat carryout totals are expected to have declined to 840 million bushels, down from 858 million bushels in December. Given the fairly robust demand for grains, especially from Asia, and weather concerns affecting the crops in Australia and South America, many speculators have a "bullish bias" in the grains to start the year. However, any major "surprises" from the USDA in their crop estimates could trigger some violent price movements, as traders are forced to reassess their positions.
Technical Notes
Looking at the daily chart for March Corn, we notice that since contract highs were made at 634.00 to start 2011, Corn prices have fallen nearly 40 cents per bushel before the slight rebound the past two trading days. Some of the selling may be tied to the rebalancing by index funds who were net sellers of grains to start 2011. Also, with large speculators holding nearly 400,000 net-long contracts to end 2010, some profit-taking selling may have occurred -- especially ahead of the USDA report. Prices are now trading right around the 20-day moving average, but are still well above the 200-day moving average. The recent sell-off may have formed a "bull flag" formation, and prices need to hold the recent lows to keep this formation intact. The contract high at 634.00 is the next major resistance point for March Corn, with support seen at the recent low of 595.00.
Mike Zarembski, Senior Commodity Analyst
