Commentary
Export sales were a bright spot for the corn market today with stronger than anticipated commitments reported by the US government. The USDA noted 1.2 million metric tons of corn sales of which half went to Mexico. However, Corn near term is plagued in my opinion on a few issues. First, last Friday’s crop report was a bearish surprise. Final 23 US corn yield was supposed to come in at 174.9 bushels per acre. Yield came in at 177.3 BPA amid record production at 15.34 billion bushels. Despite harvested acres being cut 500K acres, ending stocks rose. Nothing friendly for futures prices there. In short July rains and a warm/dry harvest improved the crop to a record.
Second funds continue to defend their short positions. CFTC reports funds have added another 10K shorts in the last reporting period to take managed money to 260K contracts short. The record net short for managed money is 322 K. I wouldn’t be surprised if funds continue to build that type of position into Spring especially if weather cooperates for Brazil’s secondary corn crop followed by sizable production in Argentina. Funds have defended their short positions for weeks in my view.
Third, Brazil’s corn market continues to make moves on the US with their spot offers dropping to a $5/mt discount to US FOB today. The current corn crop in Argentina is now 93 percent planted versus 92 percent the five-year average. Currently the crop is rated 41% better than a year ago. Argentina is tracking very close to normal for 30-day rainfall with 2/3 of the belt at normal with only 15% of the belt exceptionally wet. This is a far cry from the last two crop seasons that saw very low production that suffered from La Nina weather conditions of too hot and dry.
All is not lost for the Bulls in my view. But it’s important to note that if one wants to establish long positions in corn, that one uses new crop contracts Dec 24 and beyond. There is a quick stat that one may consider moving forward for historical context. Since 1963, for January 1st until the First Notice Date of the Dec contract, there have been 4 years (1985,1986,1989 and 2001) that Dec corn failed to close higher than the highest January closing price. The Dec 24 corn high this month is at 498^6. Currently Dec 24 futures are at 4.76. Past Performance in commodities is not indicative of future results. So, caution is warranted here. That said, WxRisk the Ag weather site sees EL Nino ending or has already ended. This has the potential that the cooler and wetter forecasts in Argentina associated with this weather pattern may end? El Nino also benefits other parts of SA during their growing season and the same for much of the US Midwest during our growing season, goes away. Weather Scouts are predicting a hotter US summer season than 2023. That is very vague, however. While it was hot in many areas of the South last Summer, the Midwest was cooler and wetter for the most part with record corn yield that verified. At some point the sizable, short will cover in corn, question is when? There are too many bushels near term with more coming into Spring. US farmers have millions of bushels on hand for example. It is my opinion longer term is the uncertainty regarding planting and acres. Short up front long in the back months in my view is how to be positioned in corn. Call it the mullet trade. Trade idea for new crop corn and spread chart below.
Trade Ideas
Futures-Work 1 order to buy the Dec 24/Dec 25 corn futures spread at 10 cents, Dec 24 under. Today the spread settled at 5 cents Dec 24 under.
Options-N/A
Risk/Reward
Futures-Unlimited risk here unless one uses a stop loss. We are buying on a dip. I would risk approximately 10 cents from entry, risking $500 plus trade costs and fees.
Options-N/A
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