Markets to focus on harvest pace
Corn Commentary: corn futures traded in a hesitant nature on Friday for much of the day leading up to the House's passage of the $700 billion bailout bill by a vote of 263 to 171. Immediately after the approval, futures gave back much of the day's gain from a need for technical short covering.
As we reported by noon, we anticipated weakness into the close on pre weekend hedge pressure for the weekend harvest. Look for this hedging activity to frequent in forthcoming Friday closes as commercials are likely to rely on the need for pre weekend hedging as it is suspected forward contracting of corn was restricted in 2008 as a result of burdensome margin calls and commercials lenders restricting available capital with the high volatility.
Next week look for the trade to become more focused on the pace of harvest and begin the very earliest of stages transitioning from a production phase to the demand phase. Also for next week the trade is likely to position leading into Friday's USDA October crop production report. The attitude on the floor suggest a need to reduce corn yield and production.
On the day it is estimated funds bought 3,000 contracts of corn after selling 10,000 contracts of corn on Thursday, 3,000 contracts of corn on Wednesday and compared to 20,000 sold on Tuesday. According to the most recent CFTC futures and options weekly net change, non commercials reduced its long position by 21,246 contracts, however commercials reduced its net short position by 39,544 contracts.
Weekly export sales of corn came in at 22.4 million bushels. In order to maintain a positive pace to meet the ultimate target of 2 billion bushels of corn exported, 30.58 million bu per week are required. With recent improprieties within the Japanese department of agriculture, it must be noted until its problems are cured, corn imports from the US could remain softer than usual.
Corn Technical Commentary: Dec corn is in a downtrend. Immediate resistance is 5042.
Vital Technical Indicator: the next projected major turn day is forecasted for October 7.
Trade Idea(s): Stand Aside.
Option Strategy(s): Dec Corn: 10/06) Buy 1 425 call @ 40. Risk to 25. Obj 75
Special Report: over the most recent eight years, the seasonal low for corn has a defining pattern. Fifty percent of the time, the seasonal low has occurred in the months of July and August and the balance in the months of November and December. With present corn futures continuing in its downtrend, it may as early as early as Nov 29 or as late as Dec 9 before futures reach its 2008 seasonal low. Disturbing is of the years which found its seasonal low in the month of November and December, the number of days rally once the harvest low was discovered were few in number. The shortest rally lasted only four days and the maximum was fifteen. The smallest rally value was six cents and the maximum was fourteen and three quarters cents.
Conclusion: the 2008 Dec futures low may be nearly two months away based on recent historical findings. However with outside influences very apparent such as the uneasiness of a credit crunch, index and hedge fund liquidation and neighboring weakness with metal, energies and other agriculture softs, 2008 could establish a seasonal low sooner than later. Especially given the fact domestic stocks to use projected for 2008-09 are 8.1% vs 12.3% last year. To add, global stocks to use for 2008/09 are a record low 12.5% vs 14.2% a year earlier.