Corn's surprising report


Friday offered a surprising report for corn seeing that funds had covered 89K shorts in just one week. While that still leaves funds short 131K it was quite a bit more active than expected. A knee-jerk reaction to that news is to lose some support as other speculators ease up on buying ahead of the funds. It's a simple idea that buying ahead of the funds when they are record short can offer a large potential for fund help to your buy order.

Now with funds short only half their original position, there is still potential support but not quite as much. Despite that, we did see the corn find active support again. Instead of seeing that support on just a 2 cent pullback it took a little more than 3 cents today. That is still a solid support day with both wheat and beans spending most of the day 8 cents lower. New 8 a.m. sales of 130K were announced this morning keeping that string of improved exports going.

Keep in mind another strong week of sales this week would put corn exports ahead of pace for the first time this marketing year. On the technical side it will be important to know that the recent uptrend crosses at 354-3/4 today in March and will be slightly higher tomorrow. As long as funds are still covering shorts, that trend line would be expected to hold. Official estimates for Thursday's report were not out at this time of writing but early thoughts are that it will be slightly supportive.


  • 130K tonnes of corn were sold to South Korea this morning keeping the string of improved exports going
  • The 100-day moving average at 357-1/4 held today with active support on a pullback again
  • Bulls can look for the recent uptrend to hold as long as funds are short covering, even if they slow their pace of buying


  • Outside markets continue to offer spill overweight to corn.
  • If ethanol reports continue to disappoint a case can be made for lowering ethanol demand on the March crop report.
  • Sellers might want to stick with selling bounces while funds are short covering and avoid chasing this market lower


Soybeans came under pressure today as the trade is gaining confidence that Argentina will be receiving much need rain by the end of the week. The size of the Argentine crop continues to be lowered by the trade due to recent dryness and heat issues they have been experiencing. The low end of the estimate is suggesting the crop to come in just shy of 50 mmt. This is downs 6 million from the USDA’s latest estimated.

Unfortunately, for market bulls, the trade is expecting the Brazil crop to offset most if not all of the Argentine losses. The currently high end of Brazil’s crop estimating it at 116 mmt up 6 million from the USDA’s current estimate. Today’s weekly exports were better than the trade had expected but they were not strong enough to offset the slow pace year to date. Marketing year shipments to date are running 110 mb behind where they need to be to meet the USDA export goal. Last week they were 108 mb behind pace.

Price wise, both the July and November contract have hit our upside objective and we are recommending producers get aggressive moving inventory. Our in-house price model suggests that prices may fall to $9.20 basis the July contract by late spring. If you want to trade the dryness in South America consider using a lower risk option strategy to maintain ownership. We forecast November soybeans to hit $10.15 on this move right now then down to $9.45 for a spring price low. Our in-house model does project for a summer rally into June/July timeframe topping out at $10.60 peak then breaking back for an ultimate harvest low of $8.60.

We would recommend working on new crop soybean sales on this move right here and not risk missing the chance to lock in profits on the hopes of a little higher price later in the summer. You could buy straight out call or bull call spread to cover these purchases if you want some weather risk coverage for the summer.


A much quieter session today than we have seen all week as we have seen a bit more in the way of pressure but volume is nowhere near what we have been seeing this week. As of now, we need to worry about the soy complex dragging us down. No change in our overall thinking that beans have the most downside potential and that if corn and wheat are going lower they are going to be dragged down by the complex rather than leading the charge lower. Sunday weather is shaping up to an interesting trade with outside market risk to wheat.  Demand continues to be seen in the grains with the USDA again posting tender sales; the Saudi’s and Egypt are in for wheat.

The pressure in the wheat market has been supported fairly well by the damaging drought and the severe cut of GTE numbers in SRW and HRW areas. The drought has increased in intensity when the U.S. Drought Monitor pegged the moderate-exceptional conditions at 47%, up from 44% last week. Spring wheat areas saw an increase to 44%, up from 41%, Kansas jumped to 65.2%, from 52.9%, and Oklahoma was rated the most severe seeing 99.7% drought conditions (99.2% previously).

Yesterday, we mentioned that the Russian exports remain strong and this just adds to the end of the week pressure. Russia’s exports are aided by their bumper crop and mild winter weather.

Wheat sales totaled 289,104 metric tonnes yesterday morning (289,106 2017/18, -2 2018/19). It will be called disappointing compared with the 300,000 - 600,000 trade expectation. This sale is the second lowest for this particular week in 20 years. USDA's whole-year goal is for 975 million in wheat exports. The US wheat marketing year runs from June 1 to May 31. We only have four months left to fix any deficit in sales. This is important as we have 750 million in sales, 77% of USDA's whole-year goal. Normally we have 85% sold by this point. We could be 75 million behind USDA's goal if this is not corrected by the end of May.

Allendale is assuming a 20 million cut for the Feb. 8 USDA report.

Outlook Summary

LA Nina patterns are weakening a bit, but it is more robust than last year. We remember the drought issues in the Plains and SW, and it is concerning that we could see similar if not worse conditions for 2018. Spring is not expected to bring abundant relief to the drought areas. In the United States, LA Niña conditions pose the greatest risk to U.S. wheat.

The growth in wheat yields will likely continue, even with normal yields. World stocks/use numbers are increasing but according to Allendale's Rich Nelson, may not be entirely bearish. Allendale has plugged in higher production numbers for 2018, but our underlying assumption is that those numbers may be a bit high.

We are suggesting that the lows are in for wheat and a grind higher is likely with a target price of 500 for Chicago wheat. End users will want to consider their needs during the next 3 to 4 months while the producer will look to engage in selling opportunities near or above July 500 levels.

About the Author

RJ Meyer, Allendale Inc.