Corn is king
Bullish to corn is tight world stocks and firm domestic and global demand. Bearish to corn is the trades concern of the number of large speculative longs and the ever apparent possibility they could leave the room without much forewarning.
Corn Futures open interest at the close of Thursday registered 1,471,381 contracts while options open interest was 1,821,239 contracts. Compare corn's open interest (The total number of futures contracts or option contracts that have not yet been exercised, expired, or fulfilled by delivery) to soybeans futures 457,374 and Options 442,339 then wheat futures of 443,879 and its options of 248,108. As you can see corn is king with respect to the grains. More surprising is how corn positions itself against the heavy hitters such as 10 Year U.S. Treasury Notes futures 2,383,490 contracts and options 2,363,891 and 5 Year U.S. Treasury Notes futures 1,512,004 and its Options 551,417 but better than the 30 Year U.S. Treasury Bonds futures of 877,795 and its options of 1,145,182 contacts.
These are the figures which are weighing on the trades mind as when the non-commercials decide to exit the corn futures and options, chaos is anticipated. Ethanol talks are on-going this week between Brazil and the USA. Brazil initial response to the USA was if the USA wants to get serious about ethanol cooperation, begin by reducing the 54 cent per gallon import tariff on Brazil ethanol because all the rest of the talk is just playing games.
WASDE: Friday's USDA World Ag Supply Demand report held two major surprises, both from S America. They are Argentina's corn crop grew by 2 MMT vs 19 MMT in Jan and compares to 15.8 MMT a year ago. The other surprise came from Brazil as its corn crop grew by 4 MMT to 46 MMT vs year ago levels of 41.7 MMT. As S America begins to approach its harvest of soybeans, be aware, corn export sales are expected to compete against USA old crop supplies.
Domestic End Stocks: The 752 mil bu of projected 2006-07 mil bu are unchanged from the Jan estimate and are caught in between the 1995 end stocks of 426 mil bu and 883 mil bu in 1996. 752 mil bu are the second lowest since 1980.
World Stocks: at 88 million metric tonnes, it is a record low dating back to 1980. The previous record low was 89 MMT in 1983.
Seasonal Tendency: We focus on the old crop July futures 3 and 5 year average seasonal tendencies as well as the ave national cash price and have to remind ourselves it is the late March, very early April time frame when peaks have been reached for corn prices.
Observations: beginning with the short corn stock years, in 1996 the national cash corn price peaked at $4.43/bu in the month of July and in 2004 the national cash corn price peaked in April at $2.89/bu. In average end stock years the national cash ave price peaks in the month of March. For the average stocked years we are using national cash average prices dating back to the year 2000 when the ethanol boon began to get its legs underneath and we did exclude the strong cash prices of 2004 and averaged them with the high cash prices of 1996. We contend futures typically peak in Mar-Apr, which cash prices peak in March in average corn end stock years but in short stocked years April was key in 2004 and July in 1996. Our conclusion would be we continue to stick with a program to begin to move 2006 cash corn in the month of March and with the newest data above conclude in short stocked years July corn calls could be bought as a form of reownership but be prepared to exit in April. For those willing to be more aggressive in the month of Feb you could buy July corn futures and hold into the month of July but be prepared for increased risk. Let us know your thoughts about the above data. It's time to take action with regards to your 2006 cash corn crop in the form of reownership and in the month of March to be prepared to move corn inventory.