** US likely to see record corn harvest despite issues. Updated USDA Sept yield estimate at 174.4 bpa. ** World corn carryout seen near a record high, but not quite as burdensome when compared to use. ** Brazil meeting reduced second crop production through imports from neighbors. ** Ethanol margins 20 c/gal positive. Hogs in the red. Dairy back in the black, feedlots losing $100. ** US Corn should see continued strong shipment pace. Black Sea, Arg, & US competing for O-N-D. ** Funds leaning about 150,000-175,000 contracts net short corn.
Overnight, the corn market was quietly mixed, finishing fractionally lower by the AM break. Not much new to discuss today, as the main input going forward will be yield reports and harvest-time hedge activity. As the harvest rolls further north, yields generally remain quite good, though perhaps missing the ‘perfect’ mark many farmers had envisioned? Forecast still a little damp, but should be enough dry pockets in the short-run to get through a little more early shelling. Total harvest may be approaching 1 billion bushels when including southern bushels. On the world scene, early corn planting in southern Brazil should advance favorably for a while, but rain will be needed in about one week. Some talk of a delay in reducing Argentina soy export taxes, which may push a few more acres to corn? May just be a scare tactic to get farmers to market the past year’s crop? French gov’t trimmed corn carryout estimates to 2.0 mmt vs. 2.4 last year. Weekly EIA energy report is expected to be fairly benign for the ethanol market. The consensus leading up to it seems to lean toward very small increases in production after last week’s 3% break off the highs, along with a small build in stocks. Sept futures expire at noon today; a few more deliveries put out overnight.
As expected, corn stalled out against tough overhead that extends up to $3.50 CZ. Not saying it can’t happen eventually, but certainly wouldn’t on the first push with harvest coming? The market should find initial support against $3.30 for a minute, with stronger support noted every nickel lower from there. On a break, consider selling at-the-money straddles at the $3.20 or $3.25 level.
“Stairs up, escalator down,” was the phrase of the day, as the corn market erased the previous four sessions of positive price action in one fell swoop. Though corn actually traded higher early in the evening, futures skidded lower and lower as Tuesday’s session dragged on, finishing about nine cents lower. Funds decisively returned to the sell side of corn this week, as the Sept WASDE contained no real game-changing elements to force further short-covering. Funds sold an estimated 10,000 corn today, which would take their net short up to an effective 195,000, when taking into account the most recent CFTC report. Many doubters on that total, given the short-covering rally that took place prior? Export pessimism likely also behind some of the break yesterday, as there are signs discretionary Asian buyers are beginning to break in favor of Black Sea feedstuffs (both corn & feed wheat). Latin buyers of course sticking with US origin on freight. Overnight, China sold just over half of the 1.02 million metric tons of 2014 vintage corn offered out of reserve. US issued a complaint to the WTO over China’s farm subsidies, which likely will not un-thaw trade relations any?
Wheat was not able to build on the positive trade from Monday. Chicago Dec wheat actually developed an outside day down, closing right off their lows. Did not get to our sell point between $4.20 to $4.25. Support remains in the $3.85 to $3.90 for now. Some are trying to build a bigger rally, but there is not much to bet on in fundamentals. Still see KC wheat as the stronger contract, but it was tugged lower by the Chi market today. KC Dec resistance is at $4.25 to $4.30. Support lies back at $4.00 for now. Chi Dec-Mch spreads should continue to widen. Sell a rally to 20 cents. Get more aggressive if you did not get it sold today. KC Dec gained a little on Chi today. This spread should continue to gain and could go back to a 30 cent premium or more.
Dec corn ended the day off 13 cents from the highs made prior to the report on Monday. Look for support at $3.25 to $3.20. Harvest activity is picking up. Some elevators sold Sept trains to stay ahead of space tightening---so glad to see the corn movement. Starting to become concerned about how farmers market corn --- or does not market corn at these lower price levels. If Dec corn eventually trades down to 3.20 to 3.15, it will get even more difficult to originate ownership coming out of harvest. Could see a tightening basis level than. I know we are early, but see some reason to bull spread Z/N c orn to protect against firming basis coming out of harvest. Not a lot of risk at current levels. Can entertain N/Z17 at 17 cent carry as well.
November beans confirmed the outside day in beans c losing 20 lower and is now 46 cents off Monday highs. Meal also confirmed the formation, but is already testing the lows and may hold here for a few days. Nov beans testing the lows at $9.37, but feels like we are headed even lower and might aim at the unfinished counts at $9.21. Still looking at the potential of a trade under $9.00. At some point here the big export program already on the books becomes support. It has to be filled. We have seen the farmer sell 40 to 45 pct of his bean crop in advance and this will go toward filling the export program---but if beans start to feel a little tight because the farmer holds the balance at these price levels, we could see the basis remain strong and support the spreads again? Dec meal should see support on a test of 300.00 but in the long term, this contract can go to 275.00 to 265.00. Dec bean oil fell through support and took out the recent lows. This sets up down side counts to 31.20 and possibly 30.40. Do not see a lasting bear market in oil but the fund length is big and c ould drive the selling. Still see tightening stocks that should be supportive. A higher close back above 32.30 would take away the negative of this close today. It takes a trade above 33.50 to set this market back on a positive note. Look for oil to hold better than meal.
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