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Low $4 corn in 2012?

12/16/2011 @ 3:49pm

There was a good start to the day, as some profit-taking came in, we saw supportive outside markets and there was a surprise sale of corn to Japan. 

Seeing a sale of corn to Japan is not uncommon but it was 205,232 metric tons of 2012/2013 corn. Instead of buying old crop, they instead bought corn for next year. This would have had larger market impact if it had been old crop corn but did supply support throughout the day. 

After the first hour of trade we saw one analytical firm release a corn acreage number for 2012/2013 of 94.389 million which was up from the 94 million seen from the same group last month. That means in one day we saw both supply and demand news on next year’s corn. Neither side was able to move the December corn close to 560 resistance. 

Bounces are still hard to come by for this market. It appears that constant small fund liquidation as well as slow old crop exports continue to cap bounces. Looking forward to trade next week, we will have to anticipate low volume and choppy trade. Unless we see surprise strong demand it is hard to see right now what will cause the December corn to break above 560. 

It is worth mentioning that very early estimates are suggesting that given normal yield and slightly increased acres translates into a price next year in the low 4’s. Does that sound impossible? In 2008, the continuous corn chart shows a high for the year at 765, in 2009 the high was 450. Considering those year's prices, our current 550 corn price for next year looks a little better.

Lower Ethanol Prices: Since December 5, ethanol prices tumbled just over 40 cents per gallon. This comes as the market prices in the impact of the end of the blending subsidy. Producers were clearing 70 cents per gallon profits in November. That is likely now at 20 to 40 cents. The chart here shows the comparison between ethanol and rbob (unleaded gas with an ethanol blend). 

Trade recommendation:

(12/14) Sell March corn 599, risk to 606, objective 580.

(12/14) Sell December12 corn 555, risk 566, objective 540.

Livestock Fundamental Support

For short term pricing, we must point out this market should remain weak for two more weeks. That is shown by the dotted line on this chart. Slaughter disruptions due to the holidays are bearish for cash hogs. For longer term issues we also wonder if part of today’s sharp futures decline was partially due to Hogs and Pigs expectations. Newswire reporters are collecting estimates for Friday’s report right now. Don’t be surprised if this report shows the industry is back into expansion. Stay bearish for the short term.

Working Trades:

(12/13) Sold February 85 put 2.05, risk 3.17 fill 12/16 for -$450.

---------------- 

 Rich Nelson 

Director of Research 

Allendale Inc. 

4506 Prime Parkway 

McHenry, IL 60050 

815-578-6161 

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