Grain Spreads: Corn Demand

Sean Lusk General Commentary Leave a Comment

Commentary:

Corn exploded higher this AM after drifting lower in the overnight session last night. After making a session low at 5.08, the market rocketed higher in early morning trading, closing at the ten percent threshold higher on the year at 5.32, approximately 24 cents from the low. It is my belief that demand news was the driver. USDA announced this AM that 1.36 MMT of corn was sold for old-crop delivery to China with another 102,800 sold to unknown destinations. In my opinion there is persistent talk within the trade that China is looking for corn and beans for both spring and summer shipment. Concern with South America availability may be a continuing factor. The bounce off recent lows is impressive and the corn sale to China affirms the strong demand story and tightening U.S. and global inventories. Getting above recent highs are key to sustaining rallies.  Archer Daniels Midland reports China bought “roughly 200 million gallons of ethanol from the U.S. for the first half of 2021,” which would be nearly equal to the previous annual record. Technically the focus maybe 5.41 and if that level can be taken out which was last weeks highs. There is a lot of concern regarding potential South American production in my opinion. Over two thirds of Brazil’s corn is grown after soybeans are harvested, and for now due to a late planter Brazilian crop, a delay in bean harvest closes the planting window for corn albeit the whole month of February is enough time to get the crop planted. The effects of La Nina should they remain to limit production gains in the months ahead to me is the real story. Will today’s corn purchase by China raise enough questions on future demand that may alter future balance sheets enough to continue the buy the dips mentality in the market? We will see, managed funds after paring some longs last week and over the weekend, are still long approximately 325K contracts in my view. The bull needs to be fed and in my opinion that happened today. If you are looking at a retracement to get in long the market, look for a pullback to the 5.22 area. There is a minor gap on the 60 minute chart and that level represents last week’s Fridays high prior to the sell-off that day that sank corn to 5.00.

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