USDA's December supply and demand report isn't usually a big market mover. For one thing, the agency doesn't update its estimate of U.S. production after November until its big January reports. That also is when the grain stocks inventory allows for better measurement of feed usage in the first quarter of the marketing year, always a tough number to guess at.
That leaves ethanol and exports as possible factors that could change in the Dec. 10 report this year. Export commitments are running above the level forecast by the agency but only a small change, if any, is warranted so far. The U.S. still faces plenty of competition on price sensitive markets around the world, and the kerfuffle over unapproved GMO corn in a couple shipments to China could be another indication of that government's desire to spread purchases around.
No great expectations for corn market rebound
Ethanol, ironically, is the bright spot in the market so far, despite all the fuss over the EPA's decision to lower the RFS for 2014. Margins remain good, thanks to cheap corn, and production in the first quarter of the marketing year is running around 7% over levels from the previous year.
Still, only a modest adjustment is likely in December. I've knocked 50 million bushels off the agency's last carryout estimate in my official guess for wire service agencies, which is at 1.837 billion bushels. Feed usage looks like it should also be greater than forecast but that won't come for another month, at the earliest.
Even with these changes, it's hard to be bullish corn. The good news, such as it is, is that prices typically make a bottom in early December in these years of normal crops. Then prices can see some firmness into the new year. For growers not wanting to take a lot of risk on their inventory, this small rally could be what passes for a selling opportunity. Speculative hedge funds still have on a near-record bearish bet in corn, so short covering could trigger gains of 15 to 25 cents relatively quickly if they gather some steam. Open interest is at its lowest level of the year, also adding potential for short-covering rallies.
The key will be taking whatever carry you can from the market, less on-farm storage costs for handling and interest, and moving on. Most years storage hedges with futures or HTAs are the way to do this, waiting for basis to strengthen. This year basis has been fairly firm, given a crop of almost 14 billion bushels, as tight farmer holding strengthened cash. The risk is that farmers start moving grain at the same time, which could create some basis train wrecks over the winter and during the spring and summer. Already I'm hearing of buyers believing they're finally in the drivers' seat after three poor crops in a row. The holiday spirit, good will, peace on earth etc., will only go so far.
Fortunately, cash prices in many areas are above the average cost of production, allowing those who need it to forward contract for a profit. The bigger worry is for 2014. Prices pencil out to a profit now, but that very well may not be the case a year from now. We've recommended getting started on 2014 sales with a 10%, and a rally to $4.75 December 2014 should trigger another sale.
For more on this, download my weekly Corn Report using the link below.
Senior Editor Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Adviser. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.
Download file: WCR120313.pdf
Size: 1319.534 KB (Kilobytes)
Created: 12/03/2013 03:32 PM
Last Modified: 12/03/2013 03:32 PMClick here
to download this file.