Afternoon Corn: Option vol bounces back slightly

Afternoon Corn:  Option vol bounces back slightly

The corn market kept the pressure on the bull. Markets tried to bounce a little overnight, but downticked gradually throughout the day. Futures would ultimately finish 6-7 cents lower, with the bearishness even infecting new crop futures. Managed Money traders were estimated net sellers of 25,000 corn today, expanding their first "net short" position in corn since early spring. Cash trade was steady/weak at the Gulf; it was mostly steady on the interior, though some eastern processors were trying to wheedle bids lower.

Without any new fodder to chew on, the bull continued to liquidate. Margin bills will also be larger tomorrow, with the CME set to raise corn margin rates 15%, no doubt also prompting some "get me out" selling. Weather remains a little bearish, too, though some were complaining of light rainfall totals overnight? Even so, Iowa still on track to get a healthy drink later this week and into the weekend? 6-10 & 8-14 day maps continue to lean warm with average to above precip odds.

The weekly EIA report held mostly bear feature, with production up-ticking slightly (+0.5%) and stocks posting an unexpectedly large build. Current run rates continue to imply a 5.45-5.50 billion bushel a year type of grind, which is close to USDA estimates. One positive point was blender demand, which jumped to a record high. Somehow, ethanol inventories still managed to build just over +3% wk/wk. Ethanol futures traded to lows not seen since this winter. The recent break in corn has been mostly mirrored by a similar decline in ethanol, implying no relief for plants struggling with negative margins for close to two years now.
Weekly export sales report in the morning is unlikely to produce any miracles for corn. We see exports coming in around the "new normal" of about 500,000 metric tons or less, old/new crop combined. A few bulls out there trying to tout the potential of a return to export competitiveness for U.S. corn, though we think the market still has more work to do. Freight costs have come down and Argentina is close to sold out, but Brazil is locked and loaded. Brazil's currency has seen significant downside pressure in recent weeks, to boot.

Elsewhere, livestock managed to finally pull themselves off the mat, with both hogs and deferred fat cattle finishing about $2 higher. Aug Feeders settled limit-up after finishing limit-down yesterday - both at expanded limits!! Dairy continues to be the only market with any real stability, still trading just a couple percent below the summer highs. Crop Tours are starting up, which could reintroduce the "farmer level view" of smaller crop sizes than those touted by the gov't and smart money types? Not sure where they are going to find ears to count in some areas given the extremely late maturity?? Financial markets were hulk-smashed today on weaker-than-expected economic data out of China and Germany.

In the options pit, volatility bounced back some after a harsh post-report collapse. One player sold 2000 dec 380/400 put spreads at 14 ½ cents, likely rolling down a position? Another house paid 8 1/2 for 1000 dec 400 calls covered delta neutral versus 376 ½ futures. Spreads were a little more stable today; old/new spreads finished little changed, but U/Z slipped another notch. Corn lost ground to the wheat, but was even'ish on the beans. Technically, the breach of key $4 Dec Corn support has established that as very difficult resistance looking forward. The bear filled the old May chart gap yesterday and is likely eyeballing the May lows -- $3.64 CZ, $3.53 CU? CU may be easier to get than CZ, given bear spreading?

KJ