Corn jumps higher, but is held back by bearish soybeans

February 10, 2014 05:22 PM
Grain & Oilseeds Report

Corn: Monday's USDA report offered a bullish surprise for the already pre-bought corn market. Trade was looking for corn carryout to fall to 1.619 billion bushels and instead the USDA showed carryout at 1.481. USDA came to that carryout number very simply by raising exports by 150 million bushels, which lowered the carryout by that same amount.

Trade had been buying corn for over a week, expecting a bullish report but this was likely more bullish than even recent traders would have expected. What likely held the corn back from taking out 450 resistance was that the beans were given an equally bearish number to offer outside market resistance to corn. Monday was a case of corn trying to work against the beans with both markets seeing only a small change by the end of the day. March had a high of 449 which is just a penny away from key resistance.

Now the big question for the short term is: Who will win out? The bearish bean number or the bullish corn number? In the short-term outlook, the corn is likely to hear little news while beans will be talking South American weather and possible Chinese cancellations every day. Because of this, the short-term outlook suggests a slight pullback in corn. Corn bulls should feel excited about what this carryout number could do if poor spring weather talk evolves. Bears can sell once again near 450 resistance but should likely not aim for large profits on that sale…Ryan Ettner  

Soybeans: The much-anticipated February report finally was released Monday and as usual the USDA threw a curve to the market as they left the U.S. ending stocks estimates unchanged. The average trade guess was for ending stocks to drop by 7 million bushels, but most in the trade were anticipating a drop of more in the 20 to 30 million bushel range. The USDA did raise export demand by 15 million bushels but they offset the demand increase by raising imports buy 5 million and dropping the residual category by 10 million bushels.

This is what we thought they might do. As we wrote last week, they could raise imports up to 35 million bushels -- they are at 30 million after today’s revision -- and this puts imports equal to last year’s number and could offset some of the demand increases. We also suggest that they could also drop the residual category from 22 -- they dropped it 10 million today -- million down to 1 million bushels to equal last year’s residual number. This means they still have 17 million more bushels they can adjust these categories to equal last year’s numbers and offset further demand increases on upcoming reports. Even with the increase in demand, it still looks like the USDA has understated exports at this time. We will have to see confirmation of the some purchases soon or the USDA will have to raise export demand again.

There was more talk about China canceling bean buys but like all of last week we have yet to receive any confirmation the sales have officially been canceled. As for Monday’s world numbers, Brazil’s crop was raised 1 mmt to 90 mmt, which was anticipated. Argentina’s crop was lowed buy 0.5 mmt to 54 mmt, which was also as anticipated. World ending stocks are projected to come in at 73.01 mmt which is up a shade form last month’s 72.33 mmt estimated. South America weather is getting a bearish spin as the Southern portions of the country’s grain belt saw 1 to 2 inches of rain over the weekend. Argentina has two more days of this heavy rain system before the forecast clears for the second half of the week. Brazil saw 0.10 to 0.90 inch over the weekend for Rio Grande do Sul in the South and Mato Grosso in the North. With Brazil’s harvest progressing as it looks like about 12% of the crop is harvested with yields continuing to be reported better than last year.

With Monday’s report out the way, we look for the trade’s attention to start to focus on next week’s USDA outlook forum. With most in the trade anticipating a record bean planting this upcoming season, the odds are the USDA will show U.S. ending stocks jumping up to 300 to 350 million bushels after this year’s production cycle. Allendale is still looking for this move higher to stall out. We are trading at such a premium to Brazil, it is hard to not think some of the purchases on the books will be canceled and could even encourage the importation of South American beans into the United States. Allendale’s pricing models suggest that old crop soybeans are at their higher end of their trading range. In the long run, we are projecting that with “normal” weather this summer, we could trade down to $9.25 basis the November contract so this rally should be looked at as an opportunity to market some bushels…Jim McCormick

Wheat: Wheat finished the day higher after the USDA report was slightly friendly. Trade was expecting numbers to remain close to unchanged, and we saw a reduction in ending stocks as a result of potentially better exports. We saw the USDA reduce stocks by 50 million bushels and with the marketing year ending in May for wheat, we need to continue to keep at the good pace we have been on for wheat exports.

The March Chicago contract continues to be in a downtrend and the failure of this market to take out the recent push higher is disappointing and we wouldn’t expect to see the trend change until we can get a close above the longer term downtrend line.

Though the report did release some friendly information, this market would still be a sell slightly below 6 dollars. We do not have enough positive chart information to assume we will start moving higher. Trading funds have liquidated some of their short positions, which could have caused the recent bounce in this market, but we need to see a more convincing export story before jumping on a bullish bandwagon.

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.