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

Market Pulse: Feb. 14, 2011

Fundamentals

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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