Bullish Surprise For Corn, But Outlook Is Not Bullish

January 13, 2014 12:19 AM

What Traders are Talking About:

Overnight highlights: As of 6:15 a.m. CT, corn futures are trading around a penny higher, soybeans are fractionally to 4 cents lower in most contracts and wheat futures are mostly 2 to 4 cents higher. Cattle futures are expected to open firmer this morning, while hog futures are called mixed.


* Bullish surprise for corn. USDA's barrage of report data provided a bullish surprise for the corn market as the 2013 corn crop estimate was unexpectedly lowered, Dec. 1 corn stocks were lower than expected and the 2013-14 carryover projection tightened by 161 million bu. from December. The sharp and persistent drop in prices was low enough to encourage stronger use -- stronger than anticipated. The bullish surprises fueled a strong recovery in corn futures that resulted in a key bullish reversal. The should have put a post-harvest low in the corn market, but the road to a sustained price recovery is going to be very bumpy.

The long and short of it: USDA's report data provided a bullish surprise, but overall market fundamentals are not bullish. Carryover is still projected to nearly double in 2013-14 and there are plentiful supplies.

* Argentina raises wheat crop estimate. Argentina's 2013-14 wheat crop estimate was raised to 9.2 MMT from 9.0 MMT previously by the country's ag ministry amid better-than-expected yields. An Argentine farmer/trader told me in December he expects the country's wheat crop to be around 10 MMT, which would leave plenty of supplies for domestic needs and free up 2 MMT to 4 MMT of wheat for export. Exporters and importers are waiting on the Argentine government to announce wheat export permits for 2013-14.

The long and short of it: Argentina is going to export wheat this year. It's not a matter of if, but when.

* Record run in cattle, beef markets. Choice and Select boxed beef cuts surged to record levels last week, which helped fuel record cash cattle prices. Tight supplies are at the reason for the record prices, but demand will determine how long and far this record runup extends. Previously, retailer demand for boxed beef has slowed on surges above $200 in Choice boxed beef, causing packers to peel back cash cattle prices. Price action in cattle futures suggests traders feel a short-term top is close for the cash cattle and boxed beef markets.

The long and short of it: While a short-term top is likely close, the downside is limited by tight supplies. And the longer-term outlook remains bullish. Demand will determine the level the cattle market will ultimately top at.


Follow me on Twitter: @BGrete

Need a speaker for a seminar or special event? Contact me: bgrete@profarmer.com

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