Bullish corn market continues
Bullish to corn are the underlying fundamentals of good global demand for corn and shrinking stocks from both the corn and wheat. Solid exports for the start of the 2006/07 marketing year and ever growing ethanol demand in the USA. Bearish to corn is high domestic cash prices cutting into the cattle and poultry markets bottom line and Argentina corn crop responding to high futures prices. In the background the investment funds are keenly aware of the crude oil weakness and role which it could play against ethanol profit margins. Technically the market was able to hold key short term MA's of 3551 vs Dec futures and 3660 vs the March futures. Long term we remain bullish.
Exports: weekly corn sales exceeded pre release trade estimate and at 54.9 million bushels bettered the 5 week ave level of 49 mil bu and 10 week ave of 44 million bu.
Broiler Egg Set: this next section is becoming a very serious problem for corn use. Broiler egg set was down 3% vs year ago levels for the same week of the year. Over the last four weeks, egg set has been down 3%, down 2%, down 3% and now this week's latest down 3%. Why is that important? Because poultry is the largest consumer of soybean meal and 2nd largest user of corn when analyzing the feed use sector of the monthly WASDE reports. Eggs in incubators for broilers are now 204,107,000 vs 205,627,000 at the beginning of October and 210,900,000 one year ago for this week of the calendar year. Broiler chicks placed are now 161,152,000 vs beginning October's level of 164,837,000 and yr earlier levels of 165,141,000.
Cash Corn: The Dec-Mar corn spread is at 15.2 cents carry. At $3.38 spot cash prices, the cost of carry is 4.1 cts per bu per mth or 12.5 cents. Anything less than 12.5 is a warning flag to move cash corn. As you work through your harvest, you might have a much better idea if there is sufficient storage on farm. If not, we would strongly advise to sell surplus bushels into the cash market when the spread strengthens to 12.6 or more. We fully anticipate futures and cash to work higher into the March-April time frame.
Corn Technicals: Dec futures close is 3552 vs last Friday's 3432 and up 10.7% thus far in the month. Our key custom Moving Averages are 3510, 3510 and uses a 2710 bull to bear pivot point. March futures close is 3704 vs last Friday's 3594 and up 10.7% thus far in the month. Our key custom Moving Averages are 3660, 3660 and a 2820 bull to bear pivot point.
Trade Position: our we are willing buyers of corn futures but on a pull back. Tight world stocks, no next new supply of corn until Argentina harvest in March 2007. We remain aware of the fact of early warning signs of economic rationing as outlined in the poultry section above.
Ethanol: Technically ethanol is immediately trading sideways and intermediately trading higher. Key technical resistance is 2.09 per gallon while key support is 1.958 per gallon, tonight's close 2.085. Fundamentals are bullish if you are processing ethanol as there remains positive profit margins, even with $3.30 per bushel feedstock input and $110 per tonne DDG by product feed. However in the background we are very aware of the building stock levels of ethanol. The very latest Energy Administration data has monthly production of 10.2 million barrels vs 8.1 a year earlier and stock levels of 9.2 million barrels vs yr earlier levels of 5.2 million!