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(August 20, 1997) CORN: Cool temps are supporting the corn, as did the Crop Status report. Traders thought that the crop's slow progress might leave it open to further weather damage. China's State Grain Reserve Bureau reported that the current drought could reduce corn production to 92.6 million tonnes, well under the USDA's 110 million tonne estimate. The question arises as to why they are letting us know that they may not have the grain. It would seem to be in their interest to be quiet about it until they had purchases arranged. Then again, who says they haven't? U.S. sales to Asia are likely to pick up due to the problems in China. Imports to China remain to be seen, as China has ample corn stocks. However, China is historically the second largest exporter of corn, behind only the U.S. When the second largest exporter can't export, and may instead have to import, this is big news. The upshot of this news is that based on those numbers and U.S. production, corn could trade quite a bit higher. World weather has not been terribly cooperative for grain production. Problems in China, Australia, Canada and Southeast Asia remain. That bodes well for U.S. grain prices. For the longer term, I am of the opinion that the lows in corn are in, and that dips should be bought.
RECOMMENDATION–If the 274-276 resistance area is taken out, expect funds to become aggressive buyers. Until such time as that occurs, aggressive traders might play the range, selling off resistance and buying dips to support. Trend traders should stay with the long side of the trade, and view dips as buying opportunities. Resistance basis December is near 272-274 and 278-280, with further resistance near 286. Support remains near 262, 257, 252-255, 247 and 239-237. Traders should buy December corn in the mid-low 260's with stops of 5-8 cents or under 255. If more conservative, hold out for a decline to the 255-258 area. Use stops of 5-10 cents. I would also contemplate buying a penetration of 274. Objective is open. Conservative longer-term traders should buy December or March calls at current levels for the long haul.
M. Steven Morgan
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