Afternoon Corn: Markets fought off a roundly bearish report

Afternoon Corn:  Markets fought off a roundly bearish report

Report day arrived at long last. Those looking for a bear report were absolutely correct, but in terms of market action, the bull carried the day. Pre-report trade was mostly a little weaker, but futures closed 8-9 cents higher. The bull will spin this as a rejection of suspect USDA production data, while bears will insist wheat carried the day and tugged corn higher with double-digit gains. Both may be correct? Managed Money traders were viewed net buyers of about 20,000 corn today and are believed to be heading into tonight net long 175,000 combined futures and options. CFTC data tomorrow will be very welcome in tightening this up. Cash trade was quiet at higher levels, with the focus mostly on today's crop report.

The July WASDE had a lot of moving parts - and we struggled to find any that were particularly friendly. First, let's start with the section that we felt had any real fundamental significance; the old crop (18/19) balance sheet. The USDA found more old crop bushels around, taking carryout to 2.34 billion bushels, which compares to 2.195 billion in the June report. This was mostly due to a 100 mil bu cut in exports; they also trimmed feed/residual and HCFS demand. To no surprise, the USDA adopted the end-of-June (larger) acreage data, but did surprise by leaving yields unchanged at 166 bpa. The hike in 19/20 carry-in and production raised domestic 19/20 carryout to 2.010 billion bushels. The average analyst guess was for it to hang out close to the June report's 1.675 billion? The world data was equally bearish, mostly due to the increase in U.S. carryouts. Oddly enough, they did not include the findings from the recent attache report out of China? 18/19 world ending stocks were raised to 329 mmt (vs. 325 in June) and 19/20 to 299 mmt (versus 290.5 mmt). Note the trend, as this is the fifth year of sliding carryout? After some initial "algo" selling, the markets completely fought off the bear stats, likely as conditions on the ground do not support a 166 bpa yield? And certainly not 83.6 million harvested acres (which would be larger than each of the prior two years)!?

Export sales this morning were the undercard to the WASDE show, arriving in-line with curbed expectations once again. USDA reported 505,400 metric tons in fresh sales for old crop (18/19), but reduced new crop (19/20) by 108,400 mt. Japan was the big buyer of record in old crop. This takes the total corn sold + shipped for the year to 49.4 mmt, and out of those, only 5.4 mmt are left open. What's interesting about this is, even if we were to ship all the corn sold (roughly a 600k-700k mt/wk pace), we would still fall well short of today's updated USDA projection of 53.3 mmt! More cuts to come here, though we still feel the USDA is way too light on both ethanol and feed/residual demand.

Elsewhere, we will no doubt go back to trading weather. Present conditions are hot and dry, broadly, across the Midwest. 6-10 & 8-14 day maps turned dry again, which no doubt helped the market shake off the report? Yes, we are adding GDD's and GDU's, but need to see a return of some rain soon to protect what limited yield potential we have left? EU, FSU, and China, could also use a drink. Early morning, CONAB also raised Brazil's total corn crop another notch to 98.0 mmt, slightly lagging current USDA estimates of 101 mmt. The ethanol crush had another good day on China "ag commodity purchase" rumors. Hogs did not, however?

In the options pit, volatility generally held up coming out of the report, excepting the Aug, which expires in two weeks. After the report, one player bought 4000 sept 400 puts vs selling 1000 sept 430 puts (yes, 4x1), collecting ½ cent. Pre-report, players rolled 1,000 Aug $4.50 Calls to the Oct $4.80 line, paying 10 ½ cents. Calendar spreads were firm; July settled 3 cents over the Sept, and expires at noon tomorrow. Corn gained on the beans, but lost to the wheat. Technically, corn is leaving behind today's lows as the new support point to beat ($4.30 CZ). Technical outside day up; we actually closed over Monday's highs? This should put the ball solidly back in the bull's court, especially if confirmed with firmer trade Friday. Next objective for the bull will be tough chart overhead near $4.70 CZ.

KJ