Corn Settles Into Comfort Zone, Beans Are the Biggest Risk

January 30, 2014 11:54 PM

What Traders are Talking About:

Overnight highlights: As of 5:45 a.m. CT, corn futures are trading fractionally to 1 cent lower, soybeans are fractionally to 2 cents higher in old-crop contracts and around 1 cent lower in new-crop contracts, while wheat futures are mostly 1 to 2 cents higher. Unless some market-moving news surfaces, daytime trade will be quiet ahead of the weekend. Cattle futures are expected to open with a mixed tone, while hogs are called slightly firmer.


* Building corn demand, but... Exporters sold an impressive 1.944 MMT of U.S. corn during the week ended Jan. 23, with 1.838 MMT of that total being for 2013-14. Obviously, global end-users see current prices as a "value" buy. Low prices are curing low prices. And corn futures responded with solid price gains. But there's no followthrough buying overnight as traders fear if prices move higher, the demand base that's being rebuilt will be slowed. So... rebuilding demand limits the downside, but the risk that a move higher will curb demand, along with a "cured" supply situation, limit the upside.

The long and short of it: I fully expect corn futures to hold in the sideways holding pattern unless there's fresh market-moving news.

* Beans may be corn's biggest risk. With the corn market settling into a comfort zone, the biggest near-term risk to corn futures is soybeans. Everyone knows South America is raising a record soybean crop. Harvest of that crop is underway in central Brazil and a few cargos are starting to leave Brazilian ports. The harvest pace and exports will pick up in February. As that happens, there's risk of Chinese cancellations of U.S. soybeans, which would likely weigh on soybean futures. And if beans come under pressure, there's risk it will spill over into the corn market, though some of that could be absorbed by long soybean/short corn spread unwinding.

The long and short of it: The corn market has adapted to the dramatic shift in fundamentals, but beans will soon have to deal with changing fundamentals. That appears to be the biggest risk to corn.

* Seasonally slowing soy demand. The coming record South American soybean crop will supplant demand for U.S. soybeans and soybean meal. Proof of that came yesterday as Cargill announced it is idling its Raleigh, North Carolina, soy crushing plant "later this spring" without giving a specific data, due to expected seasonally reduced demand for U.S. soybean meal. The plant will reevaluate market conditions and will restart operations if conditions change. Basically, once South American exports slow, the plant will likely fire up again.

The long and short of it: The location of the plant closure is of importance. South American soybean meal has been imported into Wilmington, North Carolina, in recent years during the second half of the marketing year as domestic supplies tighten and domestic prices rise. It seems like Cargill is anticipating the same happening again this year.


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