Grains and oilseeds were stronger to start the week except for new crop corn. December corn closed 3 cents lower at $5.32 and is still in the same range it was last week. Wheat held strong support from Chinese interest and freeze worries in the US.
A wire story reported that the CNGOIC confirmed the sale of 14-16 cargoes of US SRW to China last week. Still no confirmations were made from the USDA yet during the 8am announcements; maybe the sales have been slow to report. HRW also found support from the chances for freeze damage on Wednesday and Thursday. Front month corn likely found support from wheat but has trailed its rally. May corn is now trading at a 79 cent discount to May Chicago wheat after trading at a high of 15 ¼ cents over less than a month ago!
May Corn – May Wheat Spread
Fund positioning has a lot to do with these major moves. The "managed money" had been aggressively buying corn in the weeks leading up to the March 28th reports. The latest Commitment of Traders report shows that the "managed money" net long corn position dropped by 98,245 contracts as of Tuesday, April 2nd! Why is this important? For one it can help explain why every small rally corn has had was immediately met with heavy sell pressure… a huge underwater position has been trying to GET OUT. Now that the funds are liquidating (or have liquidated), which group is going to step in to support or even rally this market again? End users are coming back into profitability but rebuilding demand is a slow process, especially on the livestock side. The northern hemisphere has had excellent wheat growing conditions while South American corn and soybean production is expected to be substantially higher than last year. The bottom line is we don’t expect prices to trend higher unless we see another weather event. In fact, we expect new crop corn and soybean prices to trend lower as more uncertainty is priced out of the market as time goes on. On Wednesday the USDA will release the April Supply and Demand report. The average guess is calling for corn carryout to be 812, soybean carryout 136, and wheat carryout 727. We will have our long term analysis in tomorrow’s letter including our own 2013 Supply and Demand estimates and price projections. For now we want to stay with our current hedge recommendations. Have a great week!
EHedger | 866.433.4371
Premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.