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9 Fundamentals That Tipped the Scale

Corn futures early on August 31 traded new contract lows, depressing many producers who felt forced to either finish up on old-crop cash sales or roll their positions into a different month down the road. However, by midmorning, the market found strength with prices closing 12¢ higher on the day. What happened? The nine fundamentals that I continue to monitor continuously all tipped the balance scale to friendly.

TECHNICALS

If you like to watch the charts, corn futures early in the trade session traded down to their targeted swing objective, lower on daily charts. Once the price objective had been met, and with very few interested in selling the corn market lower in the face of a potential seasonal low, profit-takers appeared on the scene. Short positions were bought back, and patient bulls that had been waiting for this came in to buy the steal of the decade! By the time the market closed, corn futures posted a VERY friendly bullish key reversal on charts nearly sealing the deal to signal, “THE LOW IS IN!”

FUNDS

Funds that had shorted corn futures bought back some short positions to exemplify profits on the books. As of the end of August, they are still short. We will likely continue to see them buy back short positions in the weeks ahead just as they did last year at this time.

SEASONALS

When are corn prices the cheapest? During harvest. Seasonally, December corn futures traditionally find their price low during the month of September. However, last year at this time, the low happened on August 31. Which was “early.” It appears that an “early harvest low” may also be in place.

THE DOLLAR

The value of the U.S. dollar has been creeping lower for months now and is at its lowest level since May 2016. Remember, when the value of the U.S. dollar is “low,” it makes it cheaper for other countries to import our commodities! We’ve definitely seen that on weekly export sales!

SUPPLY AND WEATHER

I don’t think it’s any secret that most in the industry truly believe that corn yield is absolutely less than trendline and definitely less than current USDA projections. Obviously time will tell, but with the threat of hurricane-remnant rain heading toward the Ohio valley, early frost threats on the horizon, and a crop that is VERY behind in terms of maturity, the stage is setting for an even smaller crop ahead.

DEMAND

Let’s face it. Corn continues to be king . . . ethanol, feed demand, and export needs. Corn demand overall continues to grow. In the most recent USDA report, the USDA prematurely cut the export potential for corn due to NAFTA fears. However, we’ve seen very little fallout in the way of losing export business overall. I think corn exports will be revised HIGHER in future USDA reports, especially with the dollar trading as low as it has been!

CHINA

Look who’s been importing corn! China. The country has been blending new and using up a good portion of the old, nasty, rotten corn that’s been sitting there for years. Remember, regarding China, always watch what they actually DO. Not what they say.

ENERGY MARKETS

After a very quiet trade period, the energy markets are picking up strength. The reason we watch them so closely is due to the simple friendly reminder that one-third of the corn we grow in this country is used for ethanol. Therefore, essentially, one-third of the value of corn is directly tied to energy. You bet it’s important to keep an eye on the value of crude oil and gasoline!

Balancing current market fundamentals and preparing for any scenario is key for success in marketing! The month of September will offer many twists and turns regarding the above fundamentals. There is a monthly USDA supply/demand report on September 12, various potential wild weather scenarios to monitor, and another USDA report of quarterly stocks on September 29. Are you ready?!

 

If you have questions, you can reach Naomi at nblohm@stewart-peterson.com .

The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Neither the information presented, nor any opinions expressed constitute a solicitation of the purchase or sale of any commodity. Those individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report.  Futures trading involves risk of loss and should be carefully considered before investing.  Past performance may not be indicative of future results. Any reproduction, republication or other use of the information and thoughts expressed herein, without the express written permission of Stewart-Peterson Inc., is strictly prohibited. Copyright 2017 Stewart-Peterson Inc. All rights reserved.

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