Corn report calls time on grain rally. Or does it?

by Agrimoney.com

Is the rally in grain markets over?

Many analysts foresaw data on Thursday showing US sowings and stocks of corn far greater than had been expected as calling time on the bull run dating back exactly a year, when sowing setbacks in Canada, and growing fears for Russia's drought sent prices soaring.

At Powerline Group, Darren Dohme wrote an "obituary" for corn, saying the fresh data implied US inventories ending 2011-12 at nearly 1.2m bushels, well above the figure of 695m bushels which helped prices of the grain hit a record high earlier this month.

"A memorial service will be held at the Chicago Mercantile Exchange margin department for all those that were still holding long with corn," Mr Dohme said, forecasting prices of Chicago's December lot falling back eventually to $5.55 a bushel, down more than $1 from Wednesday's close.

Weather challenges?

However, many other investors were more reluctant to call time on the rally.

Offre & Demande Agricole said that world corn supplies remained "very tight", leaving production prospects vulnerable to weather setbacks.

"There is no room for a weather problem in corn this year," the French-based group said.

And at New York-based Teucrium Trading, which issues commodity-based exchange traded funds, company president Sal Gilbertie said that, while the highs in corn had been seen for now, he was "not comfortable with calling the end of the bull market".

The higher-than-expected US inventory data appeared to indicate that high prices had been effective in choking demand, particularly among livestock feeders.

"Demand for corn is showing pretty good elasticity," Mr Gilbertie said.

However, that implied that "demand is going to come right back if prices fall", limiting the extent of the fallout.

Timing issue

Furthermore, being based on data on June 1, US corn sowings could in the end prove lower than the 92.3m acres the report suggests, given that rains continued to dog plantings in northern states well into this month, he added.

Benson Quinn Commodities said that this could prove an issue in particular for spring wheat sowings data, which were broadly in line with forecasts.

"More acres could have been lost to excessive rains in Western North Dakota and Montana into the latter half of June," the broker said.

Offre & Demande Agricole said: "This acreage figure can still be subject to later changes."

'Simply don't add up'

Indeed, the USDA said it would resurvey plantings data for North Dakota, South Dakota, Minnesota and Montana in regard to planted acreage, areas badly affected by the persistent rains.

Even so, many analysts said that other states needed looking at again too, with Darrell Holaday at Country Futures calling a cut of only 100,000 acres to the estimate for Indian sowings, and 200,000 for Ohio plantings, "difficult numbers to swallow".

And the estimates of higher corn stocks "simply don't add up", given data on use, and may represent a higher-than reported harvest last year, Mr Holaday added.

"The USDA will lose a lot of credibility with the stocks number."

At PitGuru, Matthew Pierce said: "Where the hell is all this corn? Why didn't all these longs of cash corn deliver against the July contract overnight?" a reference to the start of the expiry process, when the physical aspects of futures kicks in.

"Why are basis offers at the Gulf of Mexico skyrocketing if the US has so much corn?"

See the original article >>