Corn finished trading on Friday higher, with the USDA World Ending Stocks indicating fears over trade tariffs against China by the United States are now fully reflected in the current price of corn.
The massive liquidations in positions upon the announcement of tariffs on Chinese good, has stripped any and all weather premium as we get further along into June and with it comes hotter weather across the growing region. Specifically this weekend with the un-forecasted high temperatures being experienced in the North.
This can indicate that the market has cleansed itself, in a way, of the underwater length, with Front-month July corn losing 4.37% on the week and December corn fell to within 1 1/4 cents of the life of contract low in the overnight session.
However, Tuesday’s USDA supply/demand report was supportive and expectations are now that a solid demand bid is in place within the corn market moving forward.
With that said, Trendline yields are needed this year, otherwise ending stocks will continue to decline. The USDA increased its estimate of US 2017/19 crop exports by 75 million bushels to 2.300 billion, which would be the highest export figure for the United States since 2007/08.
The export pace in April was a record, and the inspection data for May implies continued global demand for United States corn.
The April export figure is enhanced further by reports that South American corn production is down 21.5 million tonnes from last year, which is roughly 845 million bushels. Further, Ukrainian and Russian corn crops are also on the decline.
With those world crop production figures the USA has pegged United States exports for 2018/19 at 2.100 billion bushels, which is likely 200 to 250 million bushels to low.
On the other hand, Informa’s updated corn acreage estimate this week was 88/706 million acres compared to the USDA March planting estimate at 88.02 million acres. Their previous estimate was 89.0 million.
To wit: Informa is using a 174.5 bushel per acre yield, with production at 14.216 billion bushels and using their acreage and yield estimates, bumping the USDA’s export estimate to 2.350 billion bushels, equating to world ending stocks at 1.369 billion bushels and the stocks to usage ratio at 9.2%, the lowest figure since 2013/14 crop.
Using the same scenario but with a yield equal to last year’s record 176.6 bushels per acre would leave ending stocks at 1.539 billion bushels and the stocks/usgae at 10.4%.
However, it’s hard to ascertain whether a directional view can be derived by this data. For instance, last year on this date, ending stocks projections at 2.110 billion bushels, December Corn was trading at $3.95 1/2, 17 3/4 cents higher than today’s low of $3.77 3/4.
In addition to the bear case is the most recent Crop Conditions report that showed 77% of the United States corn crop was rated good/excellent compared to 78% last week and 67% last year. The 10-year average for this time of year is 69%. While the top three producing states of Iowa, Illinois and Nebraska have good/excellent ( G/EX ) ratings at 81%, 82% amd 86% respectively; this weekend’s temperatures will likely stress the crops in some of those areas.
The bottom line is that there are still many chances for adverse weather to affect the crop, with pollination periods likely to start in early July.
Regarding the positioning of managed money traders in this week’s C.O.T report showed a decline of 77,282 versus last week reduction of 88,828 contracts. This brings their net long as of June 12th to just 36,126 contracts.
In conjunction with the technical action shown in December Corn on Friday would suggest a market that is closing in on a near-term low. Friday’s low at $3.77 3/4 was just 1 1/2 cents above the contract low at $3.76 1/4, made on September 1, 2016.
What I’ll be watching this week is December Corn trading up to $4.03 1/4 and as low as $3.76 1/4. Moreover, I’l be watching the September Corn $4.00/$$.50 bull call spread.
-R.W. N II