By Chris Lehner
From the release of the July WASDE Report, up to the report released Aug. 12, analysts and reporters concentrated on how the Aug. 12 report would show discrepancies and inconsistencies with planted U.S. acres. For a month, speculative traders and farmers debated the size of the U.S. crop. Sides were drawn as if it was the war between those feeling there were larger planted acres and high yields to those believing planted acres for corn and soybeans should be reduced resulting in lower yields.
Low and behold, at 12 p.m. (ET) Aug. 12, the USDA came out and showed both a reduction in planted acres for corn and a drop in yield. For corn and soybeans, corn reacted with an outside day higher and new crop December corn closed 9 ¾ cents up from the previous day and 18 cents higher, off the contract low made during the morning pre-report trade.
But did corn rally due to the report? Probably not. After all, a 13.8 billion bushel yield is a record breaker. It means there will be more than enough corn to get through the remaining months of 2013 and well into new crop harvest 2014. It's more than enough corn. It means the grain buyers that have been extending the carry because of their concern of too much corn coming at harvest is a valid worry. It could easily mean by mid harvest bins will be filled on the farm and grain is being dumped on the ground at elevators around the country. The cash bid, the basis, will very likely widen.
So why did corn bounce after the report was released. The answer is really quite easy. It was becoming oversold. Up to the report, corn was anticipating a large crop. When corn broke $5.00/bushel on December futures farm contracting picked up slightly to combine with large speculators that have been selling for weeks along with large speculators simply getting out of the commodity markets. Monday morning, about an hour before the report, the Relative Strength Index was around 14.8 percent. Essentially, very few traders were stepping up to buy and to maintain long term long positions. For weeks, sellers were making the money and buyers were getting tired of being beat up.
When a market becomes oversold, in order to offset positions, sellers become the buyers and the liquidation with the entry of buy orders without new sellers can make a market bounce higher.
Because the report was bearish, the move higher on corn was simply sellers taking profits along with a few day traders buying and a few new buyers believing the report was friendly enough to take new long positions.
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