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