Grain Spreads: 3 Inputs for Corn

Sean Lusk General Commentary Leave a Comment

Commentary

The corn market continues to rally on three fronts in my opinion. First, It is my belief that  market is being supported by speculation USDA will confirm tightening old-crop carryover supplies in Wednesday’s WASDE report from USDA.  This comes amid new-crop inventories that are unlikely to rise much even with more acres and trendline yields in my view. Per Reuters, analyst estimates for old crop are looking for to 1.275 billion bu., down from 1.352 billion bu. estimated in April, while new crop carryover is seen at 1.344 billion bushels. Second, sizable export sales for the third day in a row into China was announced before the reopening this morning. USDA announced private exporters sold 680,000 MT of corn to China for new-crop delivery. That follows Monday’s announcement of 1.02 MMT of new-crop corn sold to China and 1.36 MMT sold to China announced on Friday. The 2021 crop is off to a good start with active planting and warmer temps while wetter conditions by the weekend could aid emergence.  As of May 9, USDA reported 67% of the U.S. corn crop was in the ground. That’s a 21-percentage point jump from last week. Corn planting was in line with last year, and 15 percentage points above the five-year average for early May with emergence close to normal due to cool weather.  Lastly, the bull story for corn continues on Brazil’s shrinking safrinha crop  despite the forecasts for some scattered rains this week.  Brazil production is seen 7.9 MMT lower than the April estimate, according to analyst estimates. The range of estimates for the official government survey tomorrow varied from 94.4 MMT to 105.5 MMT, per Reuters.

Technically, it’s a percentage game now in my view and let me explain. July is still the most actively traded contract followed by new crop December. July 21 corn closed the day 10 cents higher at 722.2. 726 is 50 percent higher for the year. We closed over that level last week, but fell back lower yesterday and settled just under it today. Another close over and the next target is the 746 -750 area. 746 is the 2013 high while 750 is 55 percent higher on year. A close over this area and the next target is 774 in my view, which is 60 percent higher on year. Support comes in at 7.03. Our low for the week was 703.4 made last night. 7.03 is 45 percent higher for year and a close below this level and next support in my view is 6.78. That represents 40 percent higher on year. A close under 6.78 and the next level down is 653.6 which is 35 percent higher on year. In my view, funds have been pushing this market to these five percent increments on the charts and have been using them as targets as we are nearing 8 to 9 year highs. Call or email me with trade ideas or questions. There is a sizable fund long in this market to keep in mind. They have defended their position on weakness in my view, how long that continues remains to be seen.

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