Corn's weakness attributed to spillover pressure from soybeans

December 29, 2015 09:17 AM
Weekly grains report

Corn 

Corn ended lower Monday after new contract lows were made in the March contract. Most of yesterday's weakness can likely be attributed to spillover pressure from soybeans, as much needed rains in Brazil are alleviating crop concerns there. This comes on top of concerns that Argentina will soon dominate the export sales market as their government eases export restrictions and devalues their currency.

Demand concerns are further being fueled by our own export picture with last week's weekly export sales report which showed year-to-date corn sales at only 44% of USDA's whole-year goal. Typically, by now 60% of their projection is sold. Export inspections today were at the lower end of trade expectations at 570,923. Trade was expecting 550,000 to 675,000.00. We expect USDA to lower their export sale expectations on the Jan. 12 Supply and Demand report.

Ethanol has also been the focus of concern in the corn trade as production is about 2% lower than this same time-frame last year. Additionally, margins continue to show an operating loss for ethanol producers, and stocks continue to build. We expect this will be reflected in the cash corn market soon.

We continue to think the true value of corn is $3.50, so we see a little more downside near term, but we are looking for higher prices after March. Volume should be on the light side for the remainder of this holiday-shortened week, so small stories could have a larger than usual impact.


Soybeans

The soybean market started the last week of the trading year on the defensive Monday as the market fell to 11 day lows. A wet forecast for Brazil was the impetus for the selling. The rains that were in the tail end of the 6-10 and 11-15 day forecasts last week have now moved into the short term forecast today and that has built the trades confidence that the rain will materialize.

It seems the question is not if northern Brazil is going to see rain but how much will they get and when it starts.  It is currently estimated that up to 11% of Brazil's crop is stressed by dryness. Portions of Mato Grosso and Goais are seeing the most stress. Adding to the market weakness are stories that US hog processors are buying Argentine “feed meal” for Jan thru April shipment. It is estimated that they will be importing 25K each month. Weekly bean inspections came right where the traded anticipated at 1.402 mmt or 51.5 million bushels. We have now shipped 958 million bushels this year. This is down 11% from last year vs the USDA outlook for a 7% decline from last year.

Unless the pace picks up the USDA will be revising exports lower7 in upcoming reports. Price wise we continue to think that moves over $9.00 look like selling opportunities without a severe weather problem in SA. We anticipate a choppy to lower trade this week to end the 2015 year.


Wheat

Wheat finished lower on Monday as the demand outlook continues to look weak for U.S. product. Pressure in grains and in the ag market overall. Sector as a whole was likely also a contributing factor to wheat weakness. This week will be a short week with a full trading session on Thursday and no trade Friday.

Trade this week will likely be low volume with little movement with larger reactions on news stories based on less market participants. Moving through the first of the year we have seen ample moisture in many of the wheat growing areas and are likely not to see too many cold snaps based on current NOAA forecasts. The dollar could be a major driver behind U.S. exports of commodities and non-commodities as strength in the dollar based on an increase in interest rates will likely add to downward pressure for U.S. wheat markets.

Right now with little fundamental news to support us we look for possible short covering as a driver higher into the end of the year but aren’t expecting any lasting rallies.

 

About the Author

Ryan Ettner is a registered commodities broker and grains analyst at Allendale, Inc. Steve Georgy is a Sr. Broker/Manager at Allendale, Inc. Jim McCormick is Senior Broker/Manager at Allendale, Inc. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com