Is The Low In?
On September 12, 2018, the USDA surprised the marketplace by estimating yield for this year's corn crop at 181.3 bushels an acre, nearly 4 bushels an acre more than the average pre-report estimate of analysts.
Prices wasted little time sliding lower, dropping from $3.70 on December futures to a low of $3.42-1/2 on September 18, 2018. Since, however, prices have recovered, and as of this writing are trading near $3.60.
The question now is whether the market has already factored in a large crop, and if traders are taking advantage of low prices.
What are reasons a low may be in place? Fundamentally, USDA’s domestic and world carryout in corn are expected to shrink in the 2018/2019 marketing year (from the 2017/2018 marketing year). Projected U.S. carryout for this marketing year is 1.774 billion bushels compared to last year's 2.002. Projected world carryout dropped from 194 million metric tons to 155 million, indicating strong usage and dwindling world supplies.
The setup is in place for strong end user buying, speculative buying interest, and a need for corn prices to rally to attract acres, as demand is at an all-time high.
A sell-off in soybean prices might suggest corn acres will increase without the need for higher corn prices to attract acres. It is still September and too early to make this argument. An expected record soybean harvest, as well as tariff concerns, have pressured prices recently. Consider where bean prices were 90 days ago.
No one knows with certainty what the next 90 days will bring. Expectations for record world demand will likely have soybean prices on the rise in the months ahead. If the tariff situation with China can resolve itself, soybean prices at ten-year lows could be very attractive to end users.
Expect that December 2019 corn futures can rally to $4.25 or higher to secure acres. This will likely need to occur by mid-winter. Although it is early, we might also make the argument that yield results so far have varied enough to suggest that reaching 181.3 bushels may be a tall task. Remember last year when a record 176.4 yield was shocking. Bottom line, there is potential for yield retraction.
More importantly, however, may be the technical picture, where managed money has been aggressively selling corn in recent weeks, approaching a net short of nearly 200,000 contracts. Short covering this past week has eliminated some of those positions. When December corn trades under $3.50, there is likely little appetite for farmers to sell, and every reason for end users and speculators to buy. It was rumored last week that index funds were buying tens of thousands of contracts. Talk of money moving out of securities and into value assets (commodities), which are considered a good buy, could suggest further short covering and new buying.
The key element that could drive prices higher is demand. The previous two USDA reports indicated big increases in yield expectations and increases in demand. Last month alone, 125 million bushels were added to demand. In other words, low prices are curing low prices.
Farmers will not likely be sellers into price weakness, perhaps a strong signal of a low. And after last week’s trade activity, it is looking likely that the low for corn is in place. However, producers should realize that price rallies may be limited. The world is not going to run out of corn anytime soon. Make small sales on rallies and be willing to buy with paper on setbacks.
If you have questions, comments, or want to know different methods to own corn on paper, contact Bryan Doherty at Top Farmer at 1-800-TOP-FARM Ext 129.
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.
Carol Tillmann Front Desk Administrative Assistant | Stewart-Peterson Office: 800.334.9779 | Fax: 262.334.6225 email@example.com
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Reproduction of this information without prior written permission is prohibited. This material has been prepared by a sales or trading employee or agent of Stewart-Peterson and is, or is in the nature of, a solicitation. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Stewart-Peterson. Stewart-Peterson refers to Stewart-Peterson Group Inc. and Stewart-Peterson Inc. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with both companies. Accordingly this email is sent on behalf of the company or companies providing the services discussed in the email.