December corn was down 14 cents late in the overnight session. Outside market forces look negative today with weakness in equity and energy markets overnight and a firm US dollar. The overnight sell-off pushed the market through the 580 3/4 level, which is 50% of the June 2010 to August 2011 rally and also below the July lows. The market is now down as much as 26.5% from the highs, and traders see the market as short term oversold. However, slowing the long liquidation selling trend during an active harvest week with bearish outside market forces is a big task. The Commitments of Traders reports as of September 27th showed non-commercial traders were still net long 242,916 contracts, a decrease of 43,709 contracts in just one week. Commodity index traders held a net long position of 342,550 contracts, down 15,920 for the week. The selling trend of the funds is seen as a short term negative force. December corn closed down the 40 cent limit on Friday, and the limit expands today. The market lost 46 cents for the week. Heavy end-of-month and quarter long liquidation selling from fund traders knocked the market back down the limit after numerous recovery bounces off of limit down during the session. The market saw aggressive selling early in the session to drive the market limit down. The USDA stocks report was considered quite bearish, with September 1st corn stocks pegged at 1.128 billion bushels, which was 164 million bushels above trade expectations and outside of the wide range of estimates. This will be the beginning stocks for the 2011/12 season, and if we were to plug in the new number to the supply/demand report and leave all of the other numbers unchanged, ending stocks would be adjusted to 836 million bushels from 672 million posted in the September supply/demand report. In addition, traders are now concerned that global economic conditions could worsen demand even further. There is also a more bearish sentiment due to talk that the October supply/demand report might show higher yield and lower usage. While there is much discussion in grain circles that feed-usage for the last quarter was down significantly from trade expectations, the stocks number could be higher than expected due to better than expected ethanol conversion. In other words, it may have taken less corn to produce the 2010/11 ethanol. Into the first week of September, our ethanol yield estimate showed that the US ethanol industry may have used 360 million bushels less corn than the USDA estimate. As a result, it is possible that feed consumption was better than expected and the higher stock levels were due to better ethanol yield. The wheat stocks number was also higher than expected, so traders have concluded that wheat feeding was below expectations. Traders see an active harvest this week, and there are more and more traders expecting a slight revision higher in corn yield for the October 12th report, which will ease tightness concerns further. With corn now cheap compared to corn prices in China and corn prices also at a point where feedlots, hog producers and ethanol producers are profitable, commercial buyers could be active ahead.
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