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It was a somewhat mixed, yet overall impressive week for grain values. All three major grains witnessed aggressive bull spread activity. Both new crop corn and wheat values slipped slightly lower this week, while the front months saw impressive gains. Soybeans also saw strong spread activity; however, both the March and November futures closed higher for the week.
March corn staged the most impressive action during this holiday-shortened week. March corn closed .12 higher for the week and interestingly settled at last Thursday’s closing price, which represented the limit down level on the day of the January USDA report.
When asked how we can trade at or above the close on the day of the negative USDA report, there are really three factors and they are all related to demand. The primary reason for the late weak surge in old crop corn values was likely tied to the strengthening basis in many areas of the country. Locations in Decatur, Ill., for example, were paying nearly .30 over the March futures to get their hands on cash corn. The cash pipeline has been somewhat empty due to tight farmer holding and solid near-term demand. This has left exporters and corn processers fighting each other and raising bids in an attempt to shake that inventory loose.
In addition, corn exports this week were solid with nearly 30 million bushels sold. Exports continue to outpace the level projected by the USDA.
Finally, the market has seen two weekly ethanol production reports in the new year since the extinction of the 45-cent blenders credit. While both have revealed declines from the previous weeks, they also continue on a pace that represents an annual amount of corn used for ethanol production, 150 million bushels higher than the USDA estimate.
It is for these reasons that old crop corn values saw a late week recovery. I would expect to see this trend continue in the short term as technical buying may now surface. Once March corn reaches a level in which cash inventory starts to move, the market will stall out and likely retreat. Whether this level is $6.15, $6.30, $6.50 or beyond is yet to be determined.
(click the charts below to enlarge)