It was a tough week for US corn exporters. The issue of GMO variety MIR162 surfaced in China late
last week and the rejection of corn cargos and containers has gotten more extensive over the week.
The issue has been difficult to follow except to know there is an issue. This GMO variety is widely
grown in the US with little chance that anyone can guarantee a cargo without it comingled with other
varieties. The Chin inspection service has decided this will not be allowed into the country. The exporter
and the buyer have had to come together to decide how to account for the contract. If they were to
demand the corn, it might be sources from another origin like the Black Sea but this variety is also
widely cultivated in So Amer so alternative origins is a problem. The fact that most of this corn was
purchased at much higher cash prices than what is trading today. Buyers should be able to replace the
corn at lower levels but this leaves the seller with big debits of around 50 to 75 cents a bu which is $1
mil per vessel or more? Some vessels have been diverted to other destinations to help solve the
immediate situation but estimates of about 40 vessels in transit make finding an alternative destination
also difficult. Loading of vessels and containers was put on hold during the week looking for some
negotiations to help relieve the uncertainty and expense. The talk of MOA looking at the application
again offers very little chance of any settlement at this point. Some feel this has a base political start.
Some feel the corn supply in China is adequate to burdensome and imports are not needed---just
cheap compared to Gov subsidized domestic prices? Remember that China is also a very larger buyer
of US wheat, milo and DDG's over the last few months. This pace of buying has hinted at bigger
demand but again---might be based on lower priced feedgrains and not supply based?
The other issue that has surfaced this week has been rumors of the Arg Gov looking at ways to
encourage the Arg farmer to sell some of his remaining 11 MMT bean inventory into the market. He
continues to hold old crop beans as an insurance policy against a potential currency devaluation or
continued inflation. There were rumors from Arg newspapers on Wed that the Gov was looking at a
reduction in the 35 pct export tax for a short period of time to help encourage the farmer to sell some
inventory into the cash pipeline. Keep in mind that the Gov is missing the tax revenue---this is the only
source of about 90 pct of their total tax revenues and the coffers are feeling the lack of movement. On
Fri that Gov said there was no cut in taxes anticipated. There was another plan floated to pay the
farmer in bonds based on an exchange rate tied to the $US. The problem is that this official exchange
rate today is 6.3 peso to the dollar. The black market rate is over 9.1. It takes a very large cut in taxes
to make up that difference? The difficulty may very well be this FX values as well as the fear of
The corn market had some change of heart this week with short term technical signals flashing signs
that the market was tired of going south. This fits with a seasonal trend this is slightly more positive for
the balance of Dec. True to form for the trade this year---about the time the trend changed, the rally
was done? Will be interesting to watch to see if there is some confirmation of the trade this coming
week. The change in trend may carry better with an outside week up and some positive technical
signals on the long term charts as well. Hedge funds continue to carry a major short positions even if it
has been reduced some over the last two weeks. The long in this market continues to be the farmer. He
has shown signs of being a more willing seller with open orders place over the market so that a bounce
in basis or a small rally in futures will keep cash channels supplied. Look for 4.40 to 4.50 to find a lot of
scaled up selling by cash sources. This is important because the ethanol plant continues to enjoy
obscene margins of $2.50 to 3.50 a bu. They cannot book it too far forward with margins 30 to 45 days
out dropping to under 75 cents. Feed margins remain good for all livestock but hog margins have
settled back off their highs over the last 30 days. The China situation will take on a more negative
impact on export basis levels if we confirm that the balance of the China sales are likely not loaded.
This is only 120 mil bu but the situation changes that feeling that the export trade was expanding well
beyond what had been expected by even the most optimistic. This will likely punch a hole in that
balloon? New crop can also rally but it should be limited. Use a rally to 4.70 to 4.80 to catch up on sales
for new crop 2014. There has not been any deliveries against CZ even as cash barges have dropped
well below delivery equivalent. This may change later
Wheat had just the opposite week as corn. Closed 48 lower and into new lows. Much of this came on
corn/wheat spreading. It has been amazing that the firming Matif wheat has not been able to support
Chi what into a more positive trade. The rally fizzled out and the trade is now pointing solidly lower if
confirmed with lower closes into the coming week. There should be a lot of overhead on a small 10 to
15 cent rally. Even the Matif was flashing signs that that rally had run its course to end the week? If Chi
wheat continues to weaken as the week starts, look for the front month to make a test of 6.00 a target.
KC should hold better but is also flashing more negative signals.
Jan beans have tried every day this week to break below 13.20 but has managed to come back and
close above that level. The trend is sideways but has managed to hold above that break out level. The
export trade in beans continues to be very strong. China has moved buying to So Amer as the
shipment period has move to Mch. The offers from Brazil are softer in new crop positions with Feb
offered at 50 cent discount o US while Mch if a full $1.00 cheaper. Apr-May offers have dropped to the
cheapest new crop basis offers out of Brazil in several years. This is a testament to the growing So
Amer crops. Arg still has considerable old crop supplies stored in Ag bags that should move prior to
new crop but they are fearful of Gov actions there that could at any time lead to major devaluation of
the currency. Fear of inflation is more real that concern about bean inverses old to new. Move stop
levels on Jan beans to 13.10.
The crush margins remain very strong so domestic basis levels will continue to be supportive
even after So Amer takes over the export trade. US trade has been so front end loaded, the supply has
potentially dropped enough to prevent a major decline in US basis until we see the export trade drop off
to nil. We should continue to see 50 to 60 mil per week for the next two months.
Meal has also continued to respect the break out level of 420. Suspect considerable sell stop action
would take place if this level comes out. Will see meal as overpriced compared to vegoil and other
feedgrains and protein sources. Soyoil continues to flirt with breakdown. It just has not been able to do
it leaving the trade in a 40 to 41 cent contracted trading range
Crop report is due Tues. Does not include production estimates for grains. That comes in the final Jan
report. Look for small adjustments to use in the tables but not much more.
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** Record crops in US, Argentina, Ukraine, and Brazil expected to hold rallies in check.
** Livestock margins in the green. Ethanol margins superb in the spot, some margin in the deferred.
** US corn competitive to most export destinations. Black Sea & Brazil still aggressive sellers.
** China (15% of total US sales) has rejected at least 180,000 mt of US corn imports for "GMO" reasons.
** Favorable start to South American growing season. Brazil 87%+ planted, Arg 48% planted.
** Dec Supply and Demand update Tuesday (tomorrow); no changes in US production expected.
Corn spent most of Sunday night in positive territory, but struggled to hold gains intact late, settling one-
half cent lower by the AM break. Despite the relative lack of enthusiasm (Wk 2 straddles trading 11
cents) we do have a USDA report tomorrow, though they will likely not adjust US production numbers
any. Instead, it's a purely balance sheet number, with modest tweaks likely in US demand and world
data. Many traders expect the USDA to tighten domestic carryout 50 mil bu or so. Meanwhile, world
carryout stats could see an uptick, as they may incorporate higher Chinese & Black Sea production
numbers. The Dec crop report is typically not a market-mover, though it's worth nothing last year's
report was negative for wheat, which led all other markets lower? As opposed to last year, funds are big
net shorts as opposed to big net longs?
Maintain a negative big picture view in the corn market, as large supplies will continue to promote
selling on rallies. If short on this rally, look to cover near the $4.20 to $4.25 area. Sell corn every
nickel or dime higher from $4.40 CH. CH faces very tough long-term resistance between $4.50 and
$4.60; Dec '14 near $4.75. In the spread arena, Wheat looks set to lose more ground to corn.
The market capped off a solid week of gains (9 cents) with a ho-hum Friday performance, closing about
a penny higher on the day. Technicians remain impressed by corn's ability to shake off the China GMO
debacle. China's gov't is still "considering" the approval of the GMO variety, but almost all believe this is
simply an excuse to avoid accepting cheaper world feed-stuffs into a heavily subsidized $9-$10 domestic
corn market. Several comments out this morning that the amount of rejected cargos has now ballooned
to 10 to perhaps even 20. Corn demand remains a tale of two markets, with strong margins seen among
domestic users, esp. in the ethanol arena.
Export markets are extremely cut-throat, with big
competition seen from both Black Sea & Brazil. Falling water levels on the Mississippi could begin to
constrain the ability to load vessels; the big soy program could further crowd out grains. It should be
interesting to see if Argentina's gov't is successful in encouraging farmers to sell stored grains/soy, of
which he is a big holder to guard against rampant inflation.
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Last weekend, Indiana Grain CEO and Trade the Farm owner Tom Grisafi appeared once again on U.S. Farm Report to discuss the trader's perspective in today's commodities market.
"Our moves in corn are limited and so volatility has been hit," Grisafi explained, noting that volatility is the "fear factor."
"The conversation you would have had with a grower three or six months ago - hey, is there a chance we could go to $5, we might go to $6 - there's not many of those conversations now, Grisafi continued. Volatility is saying we're at a lower price level for a while."
To see what else Grisafi had to say about corn, soybeans, and markets in general, visit <a href="http://www.agweb.com/usfr/">The U.S. Farm Report</a> to view the segment in full.