Corn settled lower on Tuesday after favorable crop ratings were reported on the Weekly Crop Progress report. December corn closed 5 ¾ cents lower at $4.38 ¼, November soybeans a penny lower at $13.02 ¼, and December wheat a penny higher at $7.00 ¾.
To the market’s surprise, corn ratings were up 5% from the September 29th report while soybeans were up 4%. These are major crop rating increases for this late in the year and immediately put corn and beans on the defensive during the overnight session. The weakness continued for corn, but there were some strong buyers in the bean market throughout the day session to recoup the early losses.
The bulls continue to discuss the rumors of strong corn and soybean sales to China over the last few weeks. We won’t have confirmation of these sales until October 31st which is the date the USDA chose to release the withheld information. I think the market is figuring out that even if they sold 3 million MTs of corn to China, it really won’t make a significant dent in our final carryout. Three million metric tons of corn equals 118.1 million bushels. As we have shown in our estimates, even when doubling our export demand and dramatically increasing feed and ethanol demand we still come out with a carryout well above 2 billion bushels using our production estimates. The last time we had a carryout this high was 2009 and the marketing year range was $2.96 ¾ and $4.26 ¼. These last few years of poor production have conditioned the market to expect $5-$8 corn and we quickly forget what a sizable carryout can do to the price. It is true that the American producer will be more likely to store grain in a holdout for better prices. In our opinion this may help basis levels but may not have a significant impact on futures prices, at least not a lasting impact.
What happens if the cash market DOES get tight from the lack of producer selling? The world just got accustomed to the US exporting only 735 million bushels of corn and has shown true elasticity during times of higher US prices. Our domestic livestock industry has thinned out substantially and will not likely pick up that extra demand we discussed earlier. The ethanol industry is capped due to the blending wall. In this scenario time will likely work against the stored grain since it will eventually be sold before the next crop arrives. If we get to next summer and prices did in fact rally due to an artificial squeeze, demand will have been curbed and an even larger market correction would likely be the result since final carryout would increase.
We have strategies in place to help protect the downside for 2013 and 2014 corn. Please contact us today if you would like a second look at your marketing plan using the Agyield software (www.agyield.com). November CBOT options will expire this Friday. The next major USDA report will be November 8th and will be especially significant since we did not get one in October.
Premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders. Click Here
to subscribe to EHedger's Grain Commentary that comes out twice daily.
Premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders. EHedger is a premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders. Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. The market information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Market information may not be consistent with current or future market positions of EHedger LLC, its affiliates, officers, directors, employees or agents.