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Bull moves for corn
The corn market has exhibited classic signs of a bull market recently. These signs include strong export sales, strong cash basis levels, front month futures trading at a premium to back months and no deliveries until the very, very end of the delivery period of a futures contract.
To review, this week March Corn futures expired at a premium to May. Right now, May futures are premium to July. Combined with strong cash basis levels, there is incentive to move cash corn, especially hedged inventories. This finally has produced some movement during this week’s rally.
Swirling around the corn market are many rumors about China—maybe their crop was quite a bit smaller than thought, their stocks are low, the government hasn’t been able to buy domestic corn to replenish state owned reserves, private firms want to buy US corn whenever it is cheaper than domestic corn.
The worry comes from the question “what happens if the spreads stay this way?” The market is trading like the corn stocks number will be a bullish figure, and that corn use may still need to be rationed in the second six months of the crop year. Many are going back to their 1996 corn charts, a similarly tight stocks year. Spreads got quite a bit wider than right now. May-July corn traded as high as 26 cents in 1996---it’s 2 cents now. This is quite a change from a few weeks ago, when market psychology was squarely in the bearish camp.
Meanwhile, anchoring the December corn futures is the thought that planted acres will still be more than adequate at 94-95 million acres. The large future supply has done little to calm the nerves of consumers who still need to acquire old crop supplies.
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