It is difficult to be bullish, especially where it counts, in the medium- to long-term (I know blu, that construction reminds you of my chigger). Here is why: It was sizzling hot in late July throughout the whole Western corn belt, without a whole lot of rain. In the old days that meant, yield hits! But I guess not anymore if the USDA is still the world’s best numbers (and they are). No irrigation, no problem in Nebraska this year, from what I heard. Either way, if I was paying for a newsletter that printed “better than expected” more than twice in the last eight weeks, I would unsubscribe. What’s the yield!!!? A broker told me today Informa had 175 bushels per acre national average! Weren’t those guys at 160 a few weeks ago? Thanks for the Informa guys!
More bad news, South Americans have been dumping a lot of cheap corn into the export channels. I don’t use the term “dumping” lightly, but in Brazil first-crop soy goes into the bins, and the saffrinha crop goes straight to the barge. They’re practically giving away the corn. But South American farmers have held soybeans. I have chided Michael Cordonnier, but he said on a non-subscription blog exactly that would happen months ago. I didn’t believe him, maybe partly because of his crummy bullish yield forecast for Brazilian soybeans, dude, stop killing the crop…(Big smiles here, I love soybeansandcorn.com, accessible and timely intelligence for sure, and for free, nothing but respect and gratitude from here.) I need to shut up and move on I think.
Okay so the corn bull is getting kicked in the left nut by a USDA forecast for slowdown in the US export pace. And the ache is lingering because we’re falling behind even the reduced targets. The right nut kick is from Informa’s 175 bushels per acre (I didn’t read that, I only heard it, so please correct any error).
The middle nut is being kicked by the Managed Money, who have amassed extended gross and net shorts in the futures market. Someone is going to get their rear kicked on the December contract, too many longs, too many shorts. Subsequent to the October 2 CFTC report, open interest is up 25k contracts (or so?), a big chunk of that came in Wednesday trade with a test of support. The USDA has the carryout of 2.2 billion bushels. Hedge fund net short positions amount to, by my estimates tonight, 750 million bushels of that. The gross short amounts to the full 2.2 billion bushels.
And if we could lift our gaze beyond tomorrow’s WASDE report, maybe we could see that once Midwestern farmers can get through the mud to harvest their crops, that will mark the last wave of supply into the export market until the saffrinha crop comes out next spring. And that’s a long time in the grain business. Sure, the global corn trade has never been the same since the Chinese government reformed domestic corn policy, and simultaneously curtailed imports, three years ago. Six or seven years ago the Chinese bought a lot of US corn, but overwhelming stocks there finally translated into large reductions of imports. But the world will need corn between now and the spring, and the US is edging into a dominant supplier role for that short period at least. All we need is the Brazilians to lighten up on their corn offers, which will happen, as the premium to soybeans is supported, and the new crop soybeans have to compete with the large old crop stocks there for storage. Of course come March, there will be dock worker strikes and grounded barges at the loading facilities. But we’ve seen those problems before, and they have been quickly resolved. The imperative to keep the logistics primed will amplify as stocks in Brazil grow this year. Beans will move, as low prices and uncertainty over the saffrinha crop withdraw corn from the market. (I guess this is where I should say futures and options are risky).
Anyway, the point is, for the next six months, if you want a barge of corn, you’re probably going to be calling someone in Texas or the Midwest. I hear there isn’t anybody good in Portland or Southwest Washington. So I am long corn futures going into tomorrow, with stops. And I will see YOU in the wheat pit!