Managed Funds are nearing a record long in Corn of approximately 370K contracts per the last CFTC released Friday. The record long is 420K contracts. The market has rallied over $2,00 from the August Pre Derecho lows, with half of the rally coming in the last 5 weeks from Mid-December when we posted a 418 low following the December crop report. Last week’s report was a bullish surprise for corn in my view, as the USDA cut last year’s yield 3.8 bushels per acre while at the same time reducing on farm stocks over 600 million bushels from the September report. In my view bullish versus expectations and a report day surprise.
The funds bought on report day (1/12/21) and the three days after prior to some light profit taking on Fridays close and some unwinding of longs today as beans were down 30 cents. I attached a July/Dec Corn spread. It settled today at 70 cents July 21 corn over Dec 21. The spread has rallied over 60 cents since the December lows and in my view, if we see a significant pullback in corn, this spread could trade down to the 50 percent retracement in the weeks ahead to 32 cents July 21 over.
A couple observations. The USDA has ending stocks still above 1.5 billion bushels. While that number is being debated as prospects of future demand may require a drop here of 200 to 300 million bushels in the months ahead. That would put corn ending stocks possibly revised down to a 1.2 or 1.3 billion bushel carry. Is it still ample enough to provide a cushion until South American corn harvests come June and July? Keep in mind that 70 percent of Brazil’s secondary corn crop goes into the ground after their massive soybean crop is harvested. A major unknown here as how weather will impact future yield on that crop. Will La Nina stick around in the Southern Hemisphere causing a downward adjustment in production. Looking at the spread below, if one is bullish corn longer term, is the value play to buy Dec 21 futures @ 450 VS the front month contracts trading at 525 and 530 with ending stocks at 1.5 billion bushels? Its something to consider as 14.00 beans will likely grab the attention of Producers to potentially plant more Soybeans vs Corn in 2021.
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