Continuing Themes: ** USDA confirms record 2016 US Corn harvest. USDA acreage intentions for 2017 out Fri, Mar 31. ** World corn carryout seen at a record high, but not quite as burdensome when compared to use. ** Argentina full year and Brazil second crop corn planting nearly complete. ** Ethanol margins breakeven/better. All livestock sectors profitable overall to various degrees. ** US Corn should see continued yr/yr gains in exports. Black Sea, Arg, & US, all competing for biz. ** Funds now close to net even after most recent CFTC surprise.
Overnight, the corn market opened higher right out of the gate, finishing two cents higher by the AM break. Roughly once every two months, the CFTC will throw a curveball in their weekly Commitment of Traders data. They did just that Friday after the close, and they put an awful lot of spin on it. For the week ended 3/14, Managed Money funds were viewed net sellers of over 100,000 contracts of corn; most estimates had the total fund tally at well under half of that level? Taking the fresh data into account and small buying Wed-Fri, funds likely went into the weekend small net shorts of roughly 10,000 corn contracts. On a side note, funds also aggressively sold length in sugar, crude oil, and gold. Index funds were also rather large net sellers in corn and soy, perhaps indicating some retrenchment of the recently popular “long commodities because its ‘cheap’” hot money trade. That’s really most of the story; one can maybe look at less-than-ideal US wheat weather, but wheat gains tended to lose the gap higher open by the AM break? On the weather front, South American conditions remain good overall, South Africa is seeing a good late season push to crops, and China’s spring looks to get off to a good start (excepting some flood potential in the Yangtze River Basin). Late Friday, AgRural estimated Brazil second crop planting progress at 96%.
The market appears to be in the midst of a much-needed corrective bounce after achieving initial downside objectives. We expect corn to find tough resistance in the $3.70 area, basis CK, which we traded up to overnight. Those with a need to be short should use the current rebound to make any desired sales or hedges of old crop inventory. A deeper test of long-term support could still be in the cards ahead of the March 31st reports, with open downside counts noted at $3.52 and then $3.41 CK.
Corn continued its recent recovery effort in a quiet, choppy Friday. No doubt many traders were more interested in filling out their NCAA brackets than their crib sheets? Futures finished the day with 1-2 cent gains, and the “official” weekly chart will record 9 cent gains. That being said, last week’s bar looks much more impressive than trade was in reality, given the expiration of the March contract, which probed multi-month lows ahead of expiration and traded at an 8 cent discount to the May. Individually, the May contract managed only three cent gains on the week. Cash markets offered some gains on the interior, as the recent break in corn has put some value back in #2 yellow for many end-users. Cattle and ethanol in particular both broadly improved their fortunes last week. The lead April Cattle contract challenged January’s high; feedlot margins could be nearing $400/head given cheaper feeders booked this winter? The ethanol crush rebounded 10 c/gal off recent lows; we would estimate nearly all plants are able to breakeven, and a few are able to earn up to 20 c/gal (50-60 c/bu) in the present environment. Hogs have maintained modest profitability throughout, while dairy is close to breakeven. There were another two cargos of US corn sold to Korea today under daily reporting.
Meanwhile farm debt continues to rise at an astonishing rate...
And finally, farmer returns have crashed to the lowest levels ever. We're not sure about you but a 2% ROIC seems a "little low" even in our current rigged interest rate environment. So, there's only a couple of ways to fix that problem...either commodity prices have to recover quickly or farmland prices need to come down substantially. Which do you think will happen first?