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From the Editor

RSS By: Brian Grete, Pro Farmer

Pro Farmer Editor Brian Grete takes time to talk with Pro Farmer Members about some of the key issues in each week's Pro Farmer newsletter.

Corn market has more 'bad news' coming

Dec 06, 2013

Hello Pro Farmer Members!

The lead markets item in this week's Pro Farmer says it's a tough time of the year for ag trade... sometimes good news is bad for the markets, sometimes bad news is good for prices. That's because there is plenty of position squaring and profit-taking that has to take place between now and the end of the year. That should help support corn and wheat prices, but could be price-negative for soybeans and meal. And the reason "bad news" can be good for prices is that corn and wheat traders will look for an opportunity to cover short positions in a down market. Once the short-covering gets started, fresh selling dries up and all of the sudden a moderate loss can turn into short-covering price gain.

Of course, the opposite can happen in soybeans. With funds long soybean futures, they're looking to liquidate longs (take profits) on up days... so price gains can reverse once the long liquidation starts to turn moderate price gains into a liquidation price loss.

See... good news can be bad and bad news can be good.

And it looks like the corn market has more bad news coming...

China has been routinely rejecting shipments of U.S. corn after finding traces of Syngenta's Viptera GMO trait. All other Asian corn importers have approved Viptera, but China has been dragging its feet on approving the trait. Approval is expected in early 2014, but that won't help to offload corn that is headed to China right now. It's thought there are between 1.5 million and 2 million metric tons of U.S. corn headed to China right now... all of which will likely be rejected.

So far, China's rejects have found a new destination someplace in Asia. New homes for orphan corn, however, will be harder to come by in the near-term. That's why China's import policies on the Viptera trait will likely be a bigger story in the weeks ahead than it has been in the past few weeks.

Most likely, China has been slow to approve the GMO for "tactical reasons." Importing countries (especially countries "new" to the World Trade Organization) typically use artificial trade barriers as a supply-side management tool. Throw up some resistance to a GMO trait or to ractopamine in beef or pork and all of the sudden those markets are more dependent on domestic supplies. That reliance on domestic supplies is supportive to domestic prices. So, instead of imports weighing on domestic prices, a trade "issue" suddenly turns into a domestic price-support program.

After China's domestic corn crop estimate was increased this week to 217.5 MMT, it probably shouldn't be surprising that the country would throw up some trade barriers to help support domestic corn prices in an effort to artifically support their farmers' revenue stream.

No government support for Brazilian farmers?

Yeah... right. It's always "interesting" when countries that have taken the U.S. to the WTO woodshed for providing what they call "market-distorting" policies start distorting their markets, too. That's going on in Brazil right now. The Brazilian government is buying corn in Mato Grosso in an attempt to strengthen prices, says Pro Farmer South American consultant Dr. Michael Cordonnier. Most likely, the corn will be used to make ethanol... reducing Brazil's potential imports of U.S. corn-based ethanol.

Mato Grosso corn prices are only about $2.40 (before transportation costs, which run about $3.00 per bu. to get it to southern export locations), so it's not like the Brazilian government's buying is having a major impact, but still... it is a government support. Brazilian farmers made the decision to plant all that corn last year in reaction to drought in the U.S. and now the government is at least partially bailing them out for growing a big crop, creating a price-negative situation for the global corn market. Oh... and that's a big crop they really had no way of getting out of the country in the first place. Nevertheless, that Brazilian corn is acting as a wet blanket on global (and U.S.) corn prices.

That's it for now...

... cold temps have moved into the Midwest right in time for Iowa's first regular gun deer season. It's going to be a cold weekend ahead, but I'll be out chasing the whitetails around Jones Co., Iowa, for the next few days. I'll have my son and daughter with me as well as buddies I grew up with. It's always a fun time... but I'd prefer 20 degrees in the morning instead of zero!

Follow me on Twitter at @ChipFlory

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