Can production stats push corn’s price higher?

Media reports of a drought in the US have been grabbing headlines this summer, but they have also had a tremendous impact on the price of agricultural commodities. The corn price is up nearly 40% this year and some wonder if it can move higher still. We may find out the answer on Friday when the US releases crucial corn and grain production statistics. The US Department of Agriculture (USDA) will release its monthly grain production reports at 1330 BST/ 0830 ET for corn, soybeans, wheat and cotton. These reports will be watched even more closely than usual due to the on-going drought in the mid-West, where the bulk of agricultural production in the US is located.

The USDA’s corn report is crucial for the price of this commodity as the US is the world’s largest producer of corn. So what stats should traders watch out for tomorrow:

1, Corn end stocks for August

2, Corn Production for August

3, Corn yield per acre

This data should tell us how much the drought has affected the size of the corn harvest, and also how the weather could affect corn stocks in the future. This has major ramifications for the world’s supply of corn and is likely to have an immediate impact on its price.

Analysts expect that end stocks of US corn could nearly half in size to 636 million from July to August. This would be the lowest level since 1995. Corn production is also expected to fall sharply to 10930 million bushels from 12970 million bushels in July. The corn yield per acre is also expected to fall below the 146 bushels per acre recorded in July, which was down on the 166.00 bushels per acre recorded in June. This is also well below the average yield of 154.55 bushels per acre since 2006.

For those new to trading agricultural commodities the same principles apply: reduced or limited supply usually puts upward pressure on the price. Since corn is a global food staple, its price is extremely sensitive to changes in supply, hence the drought-related supply bottle neck could cause corn prices to jump another leg higher in the coming weeks. At the same time as supply has been constrained demand growth has been moving in line with a growing global population, hence it could be the perfect storm for the corn price.

Trading strategy:

The monthly USDA data is a bit like the Non-Farm payrolls of the commodities world. It causes a lot of excitement and volatility in the markets. For example, the last release on the 11th July caused the corn price to whipsaw within a $75 range in the immediate aftermath of the release.

The data in July showed a sharp drop in production, which then caused the corn price to rally for the rest of the month. Although expectations of weak production data for August may have helped to boost the price in recent days, any negative surprises could see the corn price surge, potentially towards the $900 mark in the days and weeks following Friday’s report.

PS, the prices we use at Forex.com derive from the futures price for corn, and the contract size equates to 5,000 bushels (at approx. $0.40 per bushel at the time of writing).

Источник: Forex.com

09.08.2012