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Is the Corn Low Close?





Very uneventful trade as we begin this new week with two-sided action overnight in the wheat market.  U.S. government offices are closed today so all export news and other updates will be pushed back until tomorrow. We have a mixed bag in the macros as energies continue to dive into lower lows but we have the metals trading higher and the U.S. dollar lower. 

With the October report now behind us and a mildly pleasant surprise with the lowered ending stocks, we should see the wheat market move into a sideways pattern.  We have to keep in perspective that at 654 million bushels, we have still increased ending stocks by over 60 million from last year but the fact that the trade was expecting the number to climb over 700 million takes away a little of the bear ammunition. 

Also a pleasant surprise was the fact that the USDA cut the world ending stocks by 3.79 MMT to 192.59 MMT and this after a net increase in world production of just over 1 MMT.  Keep in perspective though that they elected to leave the Russia crop estimate unchanged at 59 MMT and many private estimates have this climbing above 60 and even 61 MMT.  Keep in perspective though that this is still and increase of over 6 MMT from last year and is the largest carryout since the 2011/12-crop year.

The best part of all of this is that the supply side of the equation should be factored in the current values so focus should be on demand.  Granted, to date most of that the business has been directed towards the Black Sea and Europe but we should begin seeing that shift back to the U.S. in the months ahead.  For the time being though, I anticipate we will be looking at sideways price action.


We appear to have a void of news for the corn market as well this morning but we have seen a little buying materialize once the day session began.  Part of this could be a balancing out from the breakdown that was witnessed on Friday. 

While the numbers released on Friday we not quite as burdensome as the trade was anticipating, as expected the general assumption was just wait until next month as they will be larger once again.  While that very well could be the case, as I discussed in the weekly letter I have heard more and more reports from the Northern reaches of the corn belt indicating that light test weights have been common and yields basically average.  If that turns out to be the case, we may not see the overall production numbers grow significantly from here.  That would not change the picture from bearish to bullish but it would potentially break the supply mentality.  Note that last Friday Conab forecast that corn acreage in Brazil will be down 4.7% so we are already seeing signs that the downward spiral in price is having an impact on future supply.

With 80% of the harvest still in front of us I remain in the camp that believes we can still see the corn market press into lower lows and challenge the 2008/2009 bottoms but even if that were the case, we are only talking about 10% move from current values.  I have to be cautious on how to word this but if we are within 10% of a low, we are basically at the bottom.  That said, lows in the corn market are generally accomplished through an extended sideways pattern and we have not even seen the beginning of that occurring just yet.  Ideally beginning from the end of this month through the balance of the year, that is the type of action that should unfold.  For producers though keep in perspective that we have solid carry in the market and once we have moved past the harvest gut slot, that should begin to erode.  The only way to take advantage of that is to sell the deferred contracts.


The bean market has been able to shake off a little of the negative trade from Friday but with limited success so far.  I do not mean to sound redundant but even though the numbers released by the USDA were lower than expectations and carryout was cut 25 million bushels, there is really nothing positive that can be said about the picture in beans right now. 

We will not see weekly updates until tomorrow but the trade will be looking for harvest completion to move up to the 35 to 40% range.  The south has been wet and showers did slow up Midwestern activity over the weekend but the forecast appear to clear from the middle of this week forward.  Over the weekend I traveled almost 700 miles over three states and as you would suspect, combines were in full force everywhere. 

Last Friday the USDA was not the only agency releasing crop reports as Conab also published projections for Brazilian production.  Granted they issued a range of estimate but forecast the bean crop will be somewhere between 3.2 and 7.3% larger than last year.  With the acreage they are using this would equate to production somewhere between 88.8 and 92.4 MMT.  Granted with the crop still in the early planting stages there is no guarantee we will see those numbers but they appear conservative compared to private estimates and the USDA. 

I have to suspect that once the weather has cleared and harvest kicks into full swing that the current strength in the bean market will quickly evaporate.  I continue to look for a push down at least into the 9.00/8.80 zone and if yields continue to perform as the early reports, a trip down to the 8.00/7.80 range is not out of the question.


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