Morning Futures Roundup

---

Corn Futures Fall on Bearish USDA Supply Report

   Fundamentals
It looks like it will be a tough year for Corn bulls, as the potential for a record crop this season continues to weigh on prices. In its May crop production & supply/demand report, the USDA raised its estimate for 2011-12 ending stocks to 851 million bushels, which is up 50 million bushels from the April report and nearly 100 million bushels above average analyst estimates.

This huge disparity between the government and private forecasts was due to the projection of an early U.S. Corn harvest this season. If accurate, this would lead to end-users having access to new-crop supplies possibly as early as August, which would help to elevate potentially tight supplies at the end of the marketing year and potentially take some of the "premium" out of old-crop futures prices.

New-crop futures also received some bearish news, as the USDA raised its outlook for this year's harvest to 14.79 billion bushels, with an expected record average yield of 166 bushels per acre. Globally, 2011-12 Corn carryout estimates were raised by nearly 5 million metric tons (mmt) to 127.6 mmt, as the USDA raised sharply its Brazilian Corn crop estimate to 67 mmt, vs. 62 mmt last month.

Many analysts were expecting a more moderate increase to 62.7 mmt. Cash-connected traders were surprised by the numbers, as cash prices have been trading at a premium to front-month futures, which signals that physical supplies are tight. Some traders believe that any dip in prices may increase export demand, particularly from China, which would negate much of the USDA's expected gains in ending stocks.

All this bearish news sent lead-month July Corn to its lowest price levels of the year, as large speculative accounts continued to shed their long positions. With old crop Corn still trading at an 80-cent premium to the new-crop December futures, we will need to see strong export sales to help justify the premium, especially with a early harvest looming in buyers' minds.

   Technical Notes
Looking at the daily chart for July Corn, we notice prices falling to lows not seen since March of 2011, as the market is starting to reflect the belief that the U.S. will produce a record Corn crop this season. Prices are now well below both the 20 and 200-day moving averages,, and momentum as measured by the 14-day RSI is weak, with a current reading of 33.00.

The most recent Commitment of Traders report shows large non-commercial traders are holding a net-long position of over 160,000 contracts as of May 1st. Though this position is thought to be much smaller since this week's sell-off to 2012 lows, it is still a formidable position, and any further weakness may be exacerbated as this long position is liquidated. The March 2011 low of 568.25 is the next support point for July Corn, with resistance found at the April 30th high of 634.75.

  
   CLICK HERE FOR THE FULL-SIZED CHART


---------------------------------------------------------------------------------

Disclaimers
This article is provided for informational purposes only. No statementin this article should be construed as a recommendation to buy or sell asecurity or to provide investment advice. The content provided has beenobtained from sources deemed reliable but is not guaranteed as toaccuracy and completeness. optionsXpress makes every effort to providetimely information to its recipients but cannot guarantee specificdelivery times due to factors beyond our control.

Derivatives involve substantial risk and are not appropriate for all investors. Please read the "Disclosure Statement for Futures and Options" prior to investing in futures or options.

For investments using a straddle or strangle options strategy thepotential loss is unlimited. Multi-leg option strategies are subject tomultiple commissions. Profits may be eroded by the commission expendedto open and close the positions and other risks apply.   



"

---

View Mike Zarembski's post archive >