Afternoon Corn: Bears failed to close the gap again

Afternoon Corn:  Bears failed to close the gap again

The holding pattern continues; over the last three trading sessions, corn has moved less than a penny in a tight seven cent range. Futures finished Thursday with penny-plus losses, and Sunday night's gap survived yet another assault. Managed Money traders were viewed net sellers of about 5,000 corn today, which would leave them net short a combined 30,000 futures and options heading into tonight. Note, CFTC data release has been pushed back to Monday afternoon (vs. usual Friday). Cash basis remains steady/firm.

Aside from a few early jitters that saw beans trade double-digits lower and corn test Tuesday's low, the ag complex was largely a bystander to another session of financial market carnage. The Dow traded more than 700 points lower for a second session in a row, on more China trade jitters. A high-level executive with Huawei, a massive Chinese communications company, was detained over the weekend in Canada on charges of Iranian trade sanctions violations. A request by the U.S. to extradite the executive raised the hackles of traders, who continue to fear a longer-term deal with China will be quite difficult to reach. As noted, the grain markets are more concerned with short-term demand prospects, which can alter the S&D of a given year. All things considered, grains held up well, but one can sense the growing impatience of the market for some details out of China on pending ag purchases. The bull must be fed!

The weekly EIA report was a little bearish for ethanol relative to market expectations but ended up very close to our pre-report estimates. Weekly production of 1.069 million bbl/day was 2% higher wk/wk; over an entire marketing year, this would consume 5.70 billion bushels of "just corn". Inventories also built slightly (+0.4%), but the market was clearly focused on the larger production tally, which certainly does not do a great job of substantiating recent market chatter of slowing ethanol plant production. Futures responded accordingly, trading back to last week's lows. Combined with the higher corn board over that timing, the ethanol crush is trading at a seven year low, which in turn implies margins remain very poor. We would estimate most plants are losing 45-55 cents/bu processed, when including all costs and cash inputs.

With Wed's "Day of Mourning", export sales were pushed back to tomorrow (Fri) morning. We are looking for another fairly good week of corn sales, likely approaching 1 million metric tons. U.S. corn has seen a decent "flight to safety bid" in the past couple of weeks after the latest bout of Ukraine-Russian tensions. Under daily reporting, Mexico was reported to have bought 190k+ metric tons of U.S. corn, more than half of which was for 18/19 delivery.

Elsewhere, South America continues on its recent dryer trajectory, though forecasters still see decent rain odds into mid-month, making this a relative non-factor at present. U.S. temps due for a warm-up? End-user markets were broadly lower on the China uncertainty.

In the options pit, volatility continues to firm back up-front, but was more mixed in the deferred. Quiet day, in truth. Players paid 4 1/4 cents for 2000 week 2 385 calls, covered delta neutral vs 383 1/2. Another house sold 100 feb 385 straddles @ 18 7/8 cents. Calendar spreads were a touch weaker today. Corn gained on both beans and wheat today. Technically, corn is doing its best to make a good trade on the weekly chart, posting an outside week up last week, and now a gap higher. The bear could not quite close that chart gap yet again today, which will keep the ball in the bull's court until it's closed. November high of $3.90 is tough resistance but momentum is positive, so it is certainly not insurmountable, especially with the right news headlines.