Focus On Record Corn Crop, Not Rising Chinese Demand

October 29, 2013 01:07 AM

What Traders are Talking About:

Overnight highlights: As of 6:00 a.m. CT, corn futures are fractionally lower, soybeans are 1 to 3 cents higher and wheat futures are mostly 1 to 2 cents higher. A choppy to mostly firmer tone is expected to start the day session, but sustained buying interest will be hard to come by without some fresh bullish news. Cattle futures are expected to favor a slightly weaker tone this morning, while hogs are called mixed.


* Corn slide continues. Corn prices are at three-year lows as a record crop is being harvested. USDA put corn harvest at 59% complete as of Sunday. While that's well behind year-ago and slightly behind the five-year average, there is no concern with the "slow" harvest pace. What traders are focused on is the record supplies, which is the reason corn futures are struggling to find a seasonal low. Typically, seasonal pressure eases as harvest moves into the latter stages. But the pressure on corn futures so far hasn't been hedge-related. Instead, fund-led selling is the main source of price pressure. Funds sold an estimated 12,000 contracts (60 million bu.) of corn yesterday, adding to their already hefty net short position in the corn market.

The long and short of it: The biggest risk to the corn market going forward isn't from fund selling since they are already loaded up on the short side of the market. The bigger risk is from commercial selling if excess corn is moved on the commercial market. So far, that hasn't been the case as many producers are filling bins instead of selling corn off the combine.

* Chinese corn imports to rise. Chinese firms have been aggressively buying U.S. corn on the drop to a three-year low in prices and the country is expected to import 5 MMT of corn from all sources in 2013, according to China National Grain and Oils Information Center (CNGOIC). CNGOIC says 100,000 MT of U.S. is arriving at Chinese ports this month with another 800,000 MT expected to arrive in November.

The long and short of it: The pickup in Chinese demand isn't enough to stop the price slide in corn futures as demand is being overshadowed by the record crop -- for now.

* HRW crop ratings dip, SRW improves. When USDA's weekly crop condition ratings are plugged into the weighted Pro Farmer Crop Condition Index (0 to 500 point scale), the HRW crop declined 8 points to 360, while the SRW crop improved 1 point to 377. HRW CCI ratings dropped in Kansas, Oklahoma, Texas, South Dakota and Montana, while ratings improved in Nebraska and Colorado. Last year at this time, the HRW crop had a 312 CCI rating, while the SRW crop stood at 376. For an in-depth look at the winter wheat crop ratings, click here.

The long and short of it: There isn't concern with the drop in HRW crop ratings as the crop is off to the strongest start in years and beneficial rains are in the near-term weather outlook.


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