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Hopes for a corn rebound
Unchanged Corn Prices: For the week, last week, March corn closed unchanged. This
market has been supported on dryness from the world's number four and six
producers (Brazil and Argentina), a rebound in crude oil, and a need for
corn to get acres. On the bearish end, we have very legitimate concerns
over demand. The export picture is a disaster (see below). There is little
chance we will hit USDA's export target. The other issue is guessing how
much ethanol will be produced.
Friday, the Dept of Energy noted October
ethanol production was just the second largest at 20 million gallons. If we
were to go on just the Sep and Oct numbers that we have in hand ethanol
production would easily beat USDA's 3.7 billion estimate. However, we have
more questions than answers on the Nov, Dec, and this month's Jan ethanol
production levels now that many plants are down or at reduced levels. Just
today we heard talk that Husker Ag out of Plainview, Nebraska stopped
taking corn and will be making some type of announcement on Monday. For the
long term we must remain bullish. We need more corn acres and we need a big
157 bu per acre trend yield. For the short term this market ran up on hopes
rather than reality. We sold the March today and look for corn to retrace
around 50% of its recent rally.
Day of Reckoning Coming?: One day we will have to deal with the significant
problem of corn exports. Just some of the reasons why are 1) higher US
dollar 2) other countries substituting wheat for corn on the feed end. 2008
world wheat production jumped from 611 to 684 million metric tonnes (2.7
billion more wheat bushels worldwide). One news wire this morning quoted US
corn at $180 per tonne versus Black Sea origin feed wheat at $120 per
tonne. 3) credit issues. The facts...USDA expects 08/09 corn sales to be
26% smaller than last year at 1.800 billion bushels. The problem...actual
year to date corn sales are 47% less than last year at this time! If the
pace from the last four weeks continues we will only hit 1.435 billion.
There are hopes for a rebound in corn sales though. Argentina and Brazil
are the world's number two and three corn exporters. We may get some of
their sales in the coming weeks. We will not get back to USDA's expectation
though. We should expect a trend of continued export cuts in the next few
Trade Idea(s): (01/02) Sold 1 414, risk 426, obj and reverse to
long at 365. Closed 412 1/4.
Option Strategy(s): (12/16) Buy 1 Dec09 390 call, sell 1 590 call, sell 1
330 put for 24 cents. Risk 12 cents, Objective 56 cents. This is a bullish
3-way option position and does require margin deposit.
Corn Technical Commentary: The trend is up and support continues to hold.
Chart-only traders would be buying.
Vital Technical Indicator: the next projected major turn day is forecast
for January 7.
Hogs Seeing Reality: While we have been bullish on hogs for some time we
have noted the short term fundamentals of cash hog and cash pork price
declines were still weighing on this market. Heck, it was just last Friday
the February contract made new lows. This morning the electronic futures,
which started at 5 am, made some raging gains for the first day of the
year. We heard everything from funds re-balancing their portfolios, to
Russia buying, to China buying, to the upcoming Goldman roll as bullish
reasons. Chart traders will note Wednesday saw good volume on the gap
filling move. Whatever the reason, it validates our bullish stance we have
made. Though Tuesday's Hogs and Pigs report had a bigger up-front supply of
hogs hitting than expected we need to remember in September they
overestimated the front end supply. Take a few of those out and you clear
the way for a good reduction in hogs, and higher prices, going into summer.
We are a little concerned that cash hogs at 52.00 may not hit the 63.85
price February futures are implying by February 14. We certainly like the
summer contracts much better. Today the objective on the long February
trade was filled. We remain long via the June/December spread.
Trade Idea(s): (12/31) Bought 1 Feb 59.30 01/02 obj 61.00 filled for +$680.
(12/31) Bought 1 Jun/Sell 1 Dec 11.45, risk to 10.00
obj 15.50. Closed 13.55.
Option Strategy(s): (12/31) Bought 1 Apr 70.00 call/sold 1 Feb 62.00 put @
-.50, risking to -2.00, obj 4.00. Closed 3.02.
Unchanged Corn Prices: For the week, last week, March corn closed unchanged. This market has been supported on dryness from the world's number four and six producers (Brazil and Argentina), a rebound in crude oil, and a need for corn to get acres. On the bearish end, we have very legitimate concerns over demand. The export picture is a disaster (see below). There is little chance we will hit USDA's export target. The other issue is guessing how much ethanol will be produced.