Corn continued to grind lower last week, giving up ground from the near record draught-induced highs last summer. That bodes well for those running short positions in the grain such as the enthusiastic followers of my Trade Alert Service.
The decline picked up steam thanks to a report from the U.S. Department Of Agriculture indicating that export sales were coming in much weaker than forecast. For the week ending October 18, shipments plunged to 142,300 metric tons, far below analyst estimates that ranged from 150,000-300,000 tons.
Sky-high prices are no doubt a major factor as major importers, like China and Egypt, seek to find cheaper alternatives for animal feed, like barley, soybean meal, cotton seed, and cheaper grades of wheat. South Korea, Japan, and Taiwan are also making the switch.
Last summer, the global warming induced draught, the worst in 50 years, cut forecasts for the 2012 corn crop to the bone, sending prices flying. Texas saw a staggering 100 days with 100 degree plus temperatures. With most of the crop now in the silo, it is looking like total production will hit a six-year low.
But it won't be as bad as first feared, thanks to the hardiness of new draught-resistant strains, the inefficiencies of the government data gathering processes, and the determined inventiveness of American farmers.
With the world's largest buyer - China - unwilling to announce any big purchases of corn at these lofty levels, prices could continue to grind down until we see early indications of the 2013 crop in the spring.
(By the way, I was at the USDA in Washington DC last week, and they have this really cool farmer's market every Saturday morning).
Corn futures have fallen 10.7% from their all-time closing high of $8.31 a bushel, almost double the lows we saw in the spring. The Teucrium Commodity Trust Corn Fund ETF (NYSEARCA:CORN) has similarly shed $9, from $53 to $46. It looks like there are more declines to come. Look no further than the PowerShares DB Multi Sector Commodity Trust Agriculture Fund ETF (NYSEARCA:DBA), a broader farming ETF which is showing a more pronounced downturn.
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