WASDE report shows corn has potential to become “yellow gold” in 2011

In the Commercial Tracker below, you see commercials from the old COT Legacy report at a 52-week low of 408,170 contracts net-short. To see how this number is broken down between producers (true commercials) and swap dealers, look at the Disaggregated COT on the weekly chart. There you will see exactly how the big money is moving in corn. Producers are actually net-short 657,865 contracts, swap dealers are net-long 249,695 contracts and managed money are net-long 383,597 contracts.

Looking at the July 2011 daily chart, you can see the trend is strong with ADX at 43. MACD is bullish, and Stochastics are extremely overbought. Remember, strong trending markets could remain overbought for some time. But I would keep an eye open for a possible correction. Look at the previous move up from late November into the first week of January. A breather may be in order. Another interesting point, the legacy report on the chart below shows small specs over 84,000 contracts net-short. Surprised? Have a prosperous trading week.

Commercial Net Tracker instructions: This form tracks the Commitment of Traders (COT) data for the commodity futures market. This form "looks" at the most recent five weeks of COT data and provides visual indications of the data. A) If the current value is at a 12-month low, the cell will display a red/burgundy background. B) If the current value is at a 12-month high, the cell will display a green background. C) If the current value went from net negative to net positive, the cell will display a blue background (indicating a bullish condition). D) If the current value is both a 12-month high and also went from a net negative to a net positive, the background will be green. You should view the data with green backgrounds to determine if they also went from net negative to net positive.

If you need help understanding how to understand how to use the COT report to your benefit, please email me at Gary@crbtrader.com and put COT report in the subject line. Please include your name and telephone number in the email.

Proceed to Page 3 for this week's detailed fundementals charts...

Corn prices extended their eight-month rally to a fresh 2-1/2 year high.

Bullish factors include:

1. The USDA’s Feb. 9 cut in its 2010-11 U.S. carry-over estimate to a 2-1/2 year low of 675 million bushels from January’s 745 million. The move reduced the ratio of U.S. corn inventories to usage to 5.0%, the lowest since 1995-96.
2. The USDA’s Feb. 9 hike in its corn usage estimate for ethanol production to a record 4.95 billion bushels, up from a January estimate of 4.90 billion.
3. The USDA’s Feb. 9 cut to its global corn carry-over estimate to a four-year low of 122.51 MMT from a January estimate of 127 MMT.

Bearish factors include:

1. The action by China to raise interest rates for the third time since mid-October. The action may slow the country’s demand for commodities, including grains.
2. Reduced foreign demand for U.S. corn after the USDA reported that U.S. corn inspected for export for the week ended Feb. 3 fell 21% from the previous week.

Weekly corn exports (week ended Feb. 3): 669.1 MT; 2009/10 (September-August) cumulative exports are down -0.2% y/y.

Fundamental outlook — Medium-term bullish — The medium-term trend is bullish after the USDA’s recent cut in its global production, U.S. production and global carry-over estimates. Record ethanol production is also a bullish factor, although inventories are rising and production may need to be cut. The corn stocks/use ratios are extremely tight with the U.S. stocks/use ratio at a 15-year low of 5% and the world stocks/use ratio at 14.6%. The main downside risks are technical long liquidation pressure and any rain in South American growing areas.

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