Corn’s tumble: Correction or trend change?

Market Pulse: July 5, 2011

Fundamentals

Corn prices sank to a 3-1/2 month low as they extended their downward correction from last month’s all-time nearest-futures high of $7.9975 a bushel.

Bearish factors include:

  1. The USDA’s unexpected June 30 hike in its U.S. corn acreage estimate to 92.282 million acres, the second largest planted crop since 1944.
  2. Reduced corn demand by livestock producers that left quarterly U.S. corn inventories on June 1 at 3.67 billion bu, higher than estimates of 3.29 billion bu.
  3. The USDA’s May 11 cut in its 2012 U.S. corn export forecast to 1.8 billion bu, a nine-year low, as record high prices erode foreign demand.

Bullish factors include:

  1. A deterioration of the corn crop after the USDA’s weekly crop conditions showed the U.S. corn crop 68% good-to-excellent condition as of June 26, down two points from the prior week.
  2. The USDA’s June 9 cut in its 2011-12 U.S. carry-over estimate to a 15-year low 695 million bu. from a May estimate of 900 million, and the cut in its global corn carry-over estimate for 2011-12 to 111.89 MMT from a May estimate of 129.14 MMT.
  3. IGC’s prediction that global corn inventories will fall to 111 MMT in 2011/12, or about 13% of consumption, the smallest stocks-to-use ratio since 1974.

Weekly Corn Exports (week ended June 23): 655.2 MT; 2009/10 (September-August) cumulative exports are -4.7% y/y.

Fundamental outlook — Bull market correction — Corn prices plunged after the USDA raised its U.S. corn acreage estimates. Price declines may be limited, though, after the USDA cut its U.S. corn production and its carry-over estimates because of flooding. The 2011-12 corn stocks/use ratios are extremely tight with the U.S. stocks/use ratio at a record low of 5.2% and the world stocks/use ratio at a tight 12.8%.

Have a prosperous trading week.

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