GRAINS

December Corn closed up 25 1/2-cents at 7.14.

December corn closed sharply higher on Thursday following the release of this morning's monthly USDA supply-demand report and production estimate. The USDA cut corn yield by a whopping 5.7 bushels to 153 bushels per acre in this morning's report. That cut 556 million bushels off the size of this year's crop and below the average pre-report trade guess of 155.2 bullish per acre. Since the USDA only counts ears and does not take into account ear size and weight, it is likely that further cuts in the crop size are forth coming in later reports. The sharp cut in production left the supply too tight to meet rising global demand. As a result, the USDA assumes prices will rise high enough to ration some 340 million bushels of demand in the coming months. The USDA also cut ethanol demand by 50 million, feed usage by 150 million and exports by 150 million bushels. The USDA remains conservative with their Chinese import expectation. The USDA estimated new-crop ending stocks at 714 million bushels, which is a 19.8-day supply and leaves very little room for additional production problems making price rationing necessary. Global corn stocks dropped to account for the decline in U.S. stocks, standing now at a 48.1-day supply. That's the tightest stocks of the past 38 years. This report confirms that the market still has not done its job of bringing global supply and demand into balance. The high-range close sets the stage for a steady to higher opening when Friday's night session begins. Stochastics and the RSI are diverging but turning neutral to bullish signaling that sideways to higher prices are possible
near-term. Closes above June's high of 7.22 3/4 would renew this year's rally while opening the door for a possible test of the 2008 high in the December contract, which was posted at 7.99 1/4 later this summer. Closesbelow the reaction low crossing at 6.65 1/2 are needed to confirm that a short-term top has been posted. First resistance is today's high crossing at 7.18 1/2. Second resistance is June's high crossing at 7.22 3/4. First support is the 20-day moving average crossing at 6.89 1/2. Second support is the reaction low crossing at 6.65 1/2.