Corn Demand Is Rebuilding, But Not Rebuilt

November 20, 2013 12:12 AM

What Traders are Talking About:

Overnight highlights: As of 6:00 a.m. CT, corn futures are around 2 cents lower while soybeans and wheat are narrowly mixed. Light and choppy trade is likely during the daytime session. Cattle futures are called mixed this morning while hogs are seen opening steady to slightly lower.


* Corn demand improving, but price support lacking. Demand for U.S. corn is definitely improving. Corn export bookings and export inspections are up sharply from year-ago. But it's not only exports that are improving. Corn-for-ethanol use is also strengthening. The combination of greater supplies and sharply lower prices is rebuilding the demand base that was sharply slashed by the runup to record prices due to the 2012 drought. While there's no question demand is improving, that hasn't led to price strength in corn futures. In fact, it hasn't even been enough to stabilize prices as the sharp downtrend remains firmly in place. It's going to take time to rebuild demand enough to restore traders' confidence in the long side of the market. The current thinking is that a price rally would slow demand again. That signals traders feel that while demand is rebuilding, it's not rebuilt -- and there's a significant difference.

The long and short of it: The process of rebuilding the corn demand base is going to take time. Therefore, the process of the corn market putting in a low is also going to take time as price strength must come from the demand side of the market as supply issues are not a concern.

* Corn rallies likely to be short-lived. In addition to concerns that demand would shut off on a price rally in corn futures, there's also likely to be a pickup in farmer selling on price strength. With producers putting a lot of corn into storage instead of selling off the combine, an extended price rally is likely to spur increased cash sales, which would also threaten to stall the rally. Also, corn traders no longer have to worry about tight supplies. This year's record crop have "cured" that issue.

The long and short of it: The multiple "hurdles" the corn market faces lowers the odds of an extended price rally and suggests you must be ready to pull the trigger relatively quickly on making 2013-crop cash sales on price strength.

* China canceling soybeans? Soybean futures were pressured Tuesday in part by unconfirmed talk that China was canceling some cargoes of U.S. soybean purchases. While actual cancelations may not happen at this time, it would not be unusual to see China cancel some purchases at some point. Chinese importers are very shrewd marketers and if given the opportunity to book cargoes at a cheaper price (even with a fee to break the original contract), they are likely to take advantage of the opportunity. Chinese cancellations wouldn't mean they don't need the beans -- they do. Instead, it would signal they see an opportunity to get a better price than when the cargoes were originally booked.

The long and short of it: Strong demand, especially from China, has been a constant in the soybean market. That will continue until the South American crop is in exportable position, which won't be until late winter/early spring.


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