Corn Succumbs to Weak Demand, Outside Markets
Thursday, November 10, 2011
The shrinking Corn crop, affected by the hot weather across much of the Midwest, gave traders little reason to rejoice, as the demand outlook for the grain turned sharply south. Strong export sales and higher cattle on feed numbers could give bulls a reason to step back into the market. However, if these figures are disappointing, Corn could see recent gains erased. Technically, Corn has been moving higher, but without any gusto. Some traders may perhaps want to consider entering the long side of the Corn market on a close above 675.00 in the December futures contract.
Fundamentals
Corn futures were unable to move into positive territory, despite a bullish USDA production report. With equity prices falling over 3% and other commodities coming under pressure, Corn bulls were unable to swim against the current of outside market forces. The USDA lowered its Corn crop projection to 12.3 billion bushels from the October estimate of 12.433 billion bushels. The cut in production estimates was larger than the market was expecting, which was 12.402 billion bushels. However, this was offset by a much dimmer demand outlook for the grain. The USDA did revise down the ending stocks figure to 843 million bushels from 866 million bushels last month, but many traders were expecting the ending stocks figure to be slashed more aggressively to 801 million bushels. Global carryout is expected to be 121.57 million metric tons, which is down from last month's guess of 123.19 million metric tons. Given the smaller crop size, many traders will be monitoring export sales figures closely, as upside surprises to exports could attract buyers. Next Friday's Cattle on Feed Report likely also becomes more significant for traders to monitor. From a macro perspective, commodity traders as a whole will be closely watching events unfold in Europe in regard to Greece and Italy. Negative events, such as the failure of either country to form a coalition government that agrees on a path to solvency, could have a largely negative impact on demand estimates for raw goods, and may reverse the strong gains made by commodities in recent weeks.
Technical Notes
Turning to the chart, we see the December Corn contract edging higher after testing the 575 level on the downside. The moves in recent sessions have been more subdued, which is an indication that bulls are being cautious. Prices are trading just below resistance near 675. This level is significant in the short-term, as it also coincides with the 50-day and 100-day moving averages. The 20-day average has acted as support over the past several weeks.
Rob Kurzatkowski, Senior Commodity Analyst
