Corn Futures Post Steep Losses on Bearish USDA Report
Friday, January 13, 2012
The bearish January USDA report has sparked a sell-off in the old crop/new crop Corn spread, lowering the old crop price premium by nearly 20 cents on Thursday alone. A look at the daily spread chart for the May/December 2012 Corn spread shows the May futures trading at a 59-cent premium to the December futures. The major support area for this spread is not found until the 44-cent area, and major support is not seen until just below a 30-cent May premium. Some traders who are looking for a potential test of the support levels in this spread may perhaps wish to explore buying December 2012 Corn and selling May 2012 Corn. Traders initialing this bear spread would wish to see the May price premium narrow.
Fundamentals
The USDA January Crop Production report has become notorious for being the catalyst for volatile price moves in the grain futures market, and this year's report was no exception, as bearish data sent prices plummeting. Corn futures were particularly hard hit -- especially old crop futures -- with prices declining by the daily 40-cent limit. The USDA raised its final estimate of the 2011-12 Corn crop to 12.358 billion bushels, which is up 48-million bushels from the December estimate and sharply higher than the average analyst estimate of 12.310 billion bushels. The USDA revised higher the average yield estimate by ½ a bushel to 147.2 bushels per acre. Traders who were expecting a nearly 100 million bushel cut in the 2011-12 Corn carryout estimate were met instead with a very modest 2 million bushel decline, to stand at 846 million bushels. Global Corn carryout estimates were raised as well to 128.1 million metric tons. The sell-off in Corn futures prices was more severe than the numbers may have dictated due to the recent 10% rally in prices the past month, as dry weather in Argentina and Brazil had many traders estimating much lower Corn production out of South America. However, recent rains in the South American growing regions may have taken some of the "risk" premium out of Corn prices, and the bearish USDA data just added fuel to the downward price slide seen since the highs were made back in August of 2011. New-crop Corn futures posted more moderate price declines, as many traders seem to be viewing potentially lower cash Corn prices in 2012 as a deterrent for producers who were considering expanding the planted acreage for Corn production this spring. Traders will get the first official estimate for this year's Corn planting estimates on March 30th when the USDA releases its prospective planting report. Until then, we may see continued price weakness until this fresh data is released.
Technical Notes
Looking at the daily chart for March Corn, we notice the limit-down price move on Thursday caused a nearly perfect 61.8% retracement of the 4-week rally started at the December 15th low of 576.25. Prices are now below both the 20 and 200-day moving averages, and the 14-day RSI has plunged to a 41.75 reading. Notice that the recent high of 664.25 just failed to reach the 200-day moving average. This rejected test of this key moving average drew in fresh sellers, capping any further gains as the market moved sideways until Thursday's limit-down move. The 664.25 high should now act as stiff resistance for the March futures, with support found at the recent low of 576.25.
Mike Zarembski, Senior Commodity Analyst
