Joseph Vaclavik is the president at Standard Grain in Chicago. Standard Grain provides futures and options brokerage to farms, feedlots, elevators, processors, end-users and traders. Visit www.standardgrain.com for more information.
Corn Below $7.00
Dec 20, 2012
The corn market is trading at new multi-month lows in nearby contracts, and below the $7.00 mark in all contracts this morning. After trading above $15.00 just earlier this week, the January soybean contract has sold off sharply, losing near 80 cents from Monday’s highs. The March wheat contract broke the $8.00 barrier overnight. Nearby corn and wheat are trading the lowest levels since July; Dec ’13 corn is exploring the lower end of a recent trading range and looks poised to test the $6.00 area. A significant winter storm is moving across much of the country this morning; much of IA, WI, MN, IL, IN, MO and OH will see good rain or snow amounts. Some areas in the northern Plains saw activity while the southern Plains continue to suffer. From a technical standpoint, yesterday’s close in old crop corn told the tale. The charts saw a major downside breakout which is resulting in margin call selling and likely new speculative selling this morning. Some talk this morning is revolving around the idea that China may be wrapping up US soybean purchases for the time being, and that the country will focus on procuring South American supplies this coming spring and summer. Brazil has seen no major weather problems and is off to a good start; Argentina saw planting delays which may ultimately result in more soybean acreage.
Informa released updated acreage estimates for 2013 yesterday. Corn acreage was pegged at 99.03mil vs. their previous estimate of 97.7mil. Soybean acreage was estimated at 78.96mil vs. 80.1mil previously. Winter wheat acreage was seen at 42.198mil vs. 42.5mil previously. We can’t argue with the upward revision in corn acreage, as economics continue to favor corn heavily vs. soybeans from a producer’s perspective. Winter wheat acreage is likely lower on dry conditions across the Plains.
South Korea announced a tender for 220,000mt of corn for May/June shipment. The tender notes that the corn cannot be of US origin as prices are too high relative to both EU and South American supplies.
Weekly Export Sales this morning at 7:30am CST, pre-report estimates:
· Corn 250,000 – 550,000mt
· Soybeans 650,000 – 850,000mt
· Wheat 450,000 – 650,000mt
Cattle on Feed tomorrow afternoon at 2:00pm CST, pre-report estimates:
· On Feed Dec 1 93% (95% previous report)
· Nov Placements 91% (87% previous report)
· Nov Marketings 100% (103% previous report)
Look for heavy liquidation from funds and specs early today. As the holidays approach, volatility could actually increase as liquidity dries up. Nearby corn contracts hold the most downside risk in our opinion as stale longs exit the market. This is the first trade below $7.00 in March corn since July, and we believe that longs had become far too comfortable. There is a chart gap at $6.83 ½ on the March corn chart, an area that will likely be the initial downside target on today’s break.