As is common, I am writing this without benefit of the U.S. Department of Agriculture World Agricultural Supply and Demand Report report, which came out the morning of Dec. 10. In a time of the year when marketing trends are strongly influenced by USDA reports and by weather and export news, this puts me in the position of being behind the information curve.
Supply and demand
It is widely believed that the WASDE will show smaller quantities of corn than have been reported until now. That would explain why demand has been stronger than expected and why exports have been higher than predicted.
A couple of months ago, I wrote about the fact that the futures spreads, the difference in price between contract months, were indicating strong demand. That demand has continued and has corn, and to a lesser degree soybeans, exceeding the export pace predicted by USDA.
One reason for strong exports is that prices are low, creating bargain opportunities for importers. Another, still unproved, is the belief that we do not have as much corn as has been shown on USDA balance sheets. If USDA confirms that in this report, it will be expressed as a cut in the production numbers and/or a cut in the grain stocks number reported. Remember, the “final” crop production number does not come until the January reports.
In anticipation of bullish numbers, corn was higher Dec. 9, with the March futures contract up 1 3/4 cents, to $4.30 3/4. That higher market had follow-through in the next session that started the afternoon of Dec. 9. So far, (I am writing at 7 a.m. Dec. 10) we are down a 1/2 cent in what looks like thin trading. This is a significant price if it holds and then goes higher.
If you are a technician, and the techs are running the market right now, you are watching the fact that, since June 28, our resistance has been getting lower. On June 28, we had a big break, with a range between $4.53 1/2 and $4.26. We finished down 11 1/2 cents and struggled for months to get back much higher than the $4.34 3/4 close that day.
On July 25, we got to $4.37 3/4. After a plunge to $4.03 3/4 on Aug. 26, we reached the recent high of $4.52 1/4 on Oct. 2. Since then, we have had lower highs, which is an indicator of a weaker market.
On Nov. 8, we got to a high of $4.47 3/4. On Dec. 9, we only got to $4.42. We are now poised near that high, waiting for the report, which the market has talked up to be bullish. If it is, we may break this downtrend. If not, the trend for lower highs will continue.
Fundamentals
There is other, fundamental, news. The best so far is the rate of exports, both of corn and soybeans. We exported, for the week ending Dec. 5, 41.3 million bushels of corn, higher than predicted by traders. That gets the exports for the marketing year to 477.7 million bushels. For the same week, we exported 59.6 million bushels of soybeans, less than expected, but supporting an accumulative for the year of 861.2 million bushels. China is the leading destination, even though they would rather buy from South American origins.
The other fundamental we are following is the weather. The weather has straightened out in Brazil, which is now essentially done planting soybeans and first-crop corn.
The rough weather hurt the wheat crop in Russia, which is the world’s number one exporter of wheat. The Russians exported 150.6 million bushels of wheat in November, which sounds like a lot, but is the lowest monthly export number since July. For comparison, Ukraine, one of the world’s largest exporters, shipped 335.1 million bushels of wheat last year and 302.3 million bushels of corn.
U.S. weather is not a big part of the market right now, but we talk about it, especially as a matter of what is stored into the spring. There is significant rain expected in the U.S. this week only on the Eastern Seaboard, which does not matter much to grain prices, as there is little grain being produced there. However, the 8-to-14-day forecast predicts dry weather for the Plains and warmer-than-normal temperatures. It is better for the wheat if temps are below freezing in the winter.
It is of note that the spec funds were net buyers of corn last week, to the tune of a net 11,000 contracts. They added 1,000 soybean contracts to their net long position. This may be because the U.S. oilseed crush was the highest of all time, 5.4% above last year. I do not expect this trend to continue, as it may just be a reflection of the poor soybean crop in Argentina, which is the leading exporter of soymeal. Brazil is expected to get a much bigger soybean crop this year than last, limiting any growth in exports for us.
In other world news, Australia is expecting higher yields of wheat, and their initial expectation was already higher.
Argentina is also predicting higher yields than normal of wheat. Russia, meanwhile, has the worst wheat crop in 23 years.
So fundamental news will dominate the markets for a couple of days coming out of the WASDE report. Then, we are likely to see the market struggling to trade based on the WASDE or returning to stirring the chicken entrails we think we see on the charts.
