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Corn bears are circling

From early this morning, the corn market has felt pressure from yesterday’s EPA announcement lowering its renewable biofuel blending mandates next year. 

Early numbers being looked at suggest that ethanol usage will go from 14.4 billion barrels of ethanol produced next year down to 13.0. To translate that over to bushels, our math agrees with other market talk today suggesting that decrease means a drop in ethanol usage from 4.9 billion bushels to 4.7. This is a quick removal of 200 million bushels from demand. 

Other market talk certainly does not help with some using yield numbers as high as 160 now. If that turns out to be an accurate measure of yield, it is now more than enough to offset the current thoughts of 1.6 million fewer acres. From any other price level, this would have likely resulted in over 10 cents lower today. Most of the support continues to come from corn being at contract lows along with the government reports still being offline. 

As long as the USDA is quiet, there are hopes that China and other importers have been active buyers of U.S. corn that trade just hasn’t heard yet. There is no doubt that a sudden announcement of sales can offer a bounce to this market, but the constant barrage of larger yield talk and now new talk of reduced demand suggests a continued bear market. 

As has been the case this entire year, bounces are still to be sold with the bears in control of this market. Those bears have high yield, reduced demand, and trend. Bulls can buy new contract lows but should look to take quick profits before selling steps in again. Bulls have the sudden announcement of exports when the government resumes along with 1.6 million fewer acres. Look for the current trend to continue.

(10/1) Sold the November 440 corn straddle (selling 440 calls and puts) for 18 cents, risk 30, objective 5 or hold to expiration, closed 14

(10/8) Sold December corn 445, objective hit at 437 1/2, +$375

(10/11) Bought December corn 435, risk 420, objective 445



Lean Hog Commentary

We are contacted each day by Dow Jones newswire and Urner Barry for a quick market discussion and daily slaughter estimates. If you take the average slaughter estimate from the three analysts they survey, then this week’s run will total 2.276 million head. That is an increase from last week’s 2.204 total. 

You should expect rising slaughter rates into November. 

The bull market in hogs is over. While bigger slaughter is a slightly bearish issue it is still not anywhere near the numbers implied by USDA’s September Hogs and Pigs report. That report indicated hog slaughter from Sep 1 to mid-Oct would run 3.5% smaller than last year. 

The remainder of October and all of November is supposed to run 1.5% higher than last year. Well, the Sep 1 to mid-Oct slaughter has run 7.0% lower than last year. We are now supposed to transition to numbers higher than last year now right? That does not make much sense as this week’s kill by itself was 4.7% smaller than last year. Until we get confirmation that those big numbers will happen, we will limit out December contract price target to $86. If USDA is right, which much of the production side of the industry disagrees with, then $82 to $84.

Working Trade:

(10/10) Sold 87.00 December call 2.30, risk 0.70, objective 0. Closed 2.17.

Rich Nelson 

Allendale Inc. 


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