The corn market followed the outside markets higher on Friday as gold made fresh 28 year highs, crude oil was up over $2 and the US$ was weaker against most major currencies. The December contract closed 8 ¼ higher on Friday but almost 4 cents off the highs as we saw late profit taking. It was basically the opposite of what we saw on Thursday and the grain markets responded. With little to no new news out, corn is moving with the outside markets and investment funds. Traders looked at the crop estimates by FC Stone and Informa and decided even if the estimates weren't bullish for corn, both were below the September estimate and weren't bearish. Informa released their estimate Friday morning at 13.139 bil bu and a yield of 153.3 bu per acre. Traders also pointed to technical buying as December futures traded about $3.80 for the first time since late September. Volume was light/moderate, but funds were buyers of 7,000 contracts. On the weather front, US harvest weather remains good and So. America continues to see good crop growing weather for early in the season. Some experienced traders are looking at historical weakness in corn this time of year when exports should slow down as most have priced their near-term needs through the first of the year, but higher outside market could stop this from happening.
eCBOT market was lower overnight on light volume with the December sitting back almost 4 cents or giving back half of the rally on Friday. Traders point to the outside markets as the reason for the break with crude oil lower and a slightly stronger dollar. The USDA announced that Egypt bot 120,000 tones of US corn for delivery in 2007/08 marketing year which began on Sept. 1st. So. Korea bot 90,000 tones of US corn over the weekend for February delivery. It is very interesting to see So. Korea into the US for corn again over the weekend instead of China. All the grain markets, but especially corn, seem to get its price action from the outside markets and investment funds, instead of weather and S&D estimates, but that isn't uncommon this time of the year. Weekly exports were lower last week which is to be expected with the higher cash prices, the end of the year, and record ocean freight. USDA releases its November production estimate on Friday so we will start to see some position squaring in anticipation. Also, traders expect to see Deutsche Bank in the corn market rolling their long Dec07 contracts into the Dec08. This will have a material affect on prices, but it should be fleeting and just shows the power of the investment funds on the grain markets. We look for the corn market to open lower this morning and look for direction from the outside markets and investment funds.
eCBOT Overnight
Contract Last Net Change High Low
ZCZ7 373^2 -3^6 376^6 372^2
ZCH8 391^4 -3^0 393^4 389^2
ZCK8 402^0 -2^0 403^0 399^2
ZCN8 410^0 -3^4 413^0 409^0
Early Opening Calls: 3 to 4c lower
Top News
**USDA reports private sale of 120,000 mt of Corn sold to Egypt for 07/08 market year
-- Ukrainian legislators have officially pushed the start date of grain exports back to Jan '08, instead of Nov '07
-- Informa on Friday estimated the corn yield at 153.3 bpa, production at 13.193 bil bu - this represents a production estimate decline of -2.37% from last month
-- The Commitment of Traders report with Options as of October 30 shows Funds: Corn Long 173,217 up 17,466
-- Dalian Corn futures +28 Yuan/mt to 1753 Yuan/mt basis the May contract on 1.129 mln contracts traded.
-- eCBOT Corn Vol: 156,666; Pit Vol.: 50,345; Open Interest change: +3,398
-- Weather: 6-10 Day Forecast: Normal to Below Temps. Normal to Below Precip. The Corn Belt looks dry today and Tuesday.
-- Outside markets. Energy: crude off 1.50 to $94.37/bbl, products lower also ; Gold slightly lower & Silver: slightly higher; US $ higher vs. Euro, but off against Yen basis the Dec futures.
Cash Markets
--CIF Corn steady. Nov. +55 to +57, Lh Nov. +57 to +60, Dec. +59 to +61, Jan. +49 to +52, Feb. +49 to +53, Mar. +49 to +52, A/M +40 to +43
TREND:
Corn has continued to develop momentum this week refusing to correct from this test of the upper end of the trading range of the last several months. A good part of the gains has come off the basis gains. Assume the futures need to help put farmer corn into the pipeline. This means tightening spreads to go along with the firmer basis. Have to take some of the carries away to pick up ground pile or prevent more from going down. Most of the basis gains of the last two weeks has been due to domestic demand. Export sales have been strong but there was plenty of harvest time cash movement to satisfy that trade to date. I look for it to continue stronger and longer than normal. There is a little more ocean freight showing at all points. Most ports remain booked up at capacity for 60 days out. Look for more activity to show out of the lakes. This might take some corn that has been trading in rail---keeping rail relatively strong.
With reduced production estimates on corn this week, there is renewed interest in the acreage mix for next year. Fertilizer cost continue to escalate for those that did not book earlier supplies. The returns on 200 bpa plus corn is very hard to compete with---for wheat and for double crop beans behind wheat. However, the US farmer has shown flexibility in plans when the economic incentive is there. They have never before been paid $6.00 for new crop wheat prior to planting. Will pull wheat acres from areas not expected! This leaves less acres available for the mix of corn and beans. The bean S&D is the one in doubt with usage expected to grow more than production with a slow down in the expansion in So Amer. Remember that Brazil has sold $6.00 corn so this market plays well there as they look at spring time acres. The delay in planting beans not only puts total acres in question but also limits double crop feed grain later next year? There also continues the tug to sugar cane. My primary concern about the bean acre expansion is the firm Real. The chart above shows the farmer there looking at $6.50 equivalent prices while the US farmer is looking at $10.00?
If you have any questions, or if you would like to discuss specific trade recommendations on any markets, contact me directly.
Jim Riley
Linn Group
877-787-6278
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