Afternoon Corn: Prepare for an overabundance of market inputs Thurs

Afternoon Corn:  Prepare for an overabundance of market inputs Thurs

The corn market did not ruffle too many feathers today, as traders adjusted their positions after Tuesday's frost rally, and ahead of tomorrow's big USDA report. Futures would finish the day about a penny lower, on light volume and within a mixed four cent range. Managed Money players were viewed net sellers of about 5,000 corn today, which would leave them net short an estimated 140,000 combined futures and options tonight. Cash trade was mostly steady; spot CIF was a little weaker, as was an interior processor or two.

First and foremost, the grain markets remain decisively on "frost-watch". If anything, the situation got a little more serious, with early runs suggesting the cold would stretch further east, perhaps impacting parts of Central Iowa. Things start getting chillier in the far west Thursday, with more serious frost potential on Friday (likely the worst day) and Saturday for other areas. At least some damage is probable for immature crops. In reality, the Western Belt is on a relatively normal frost trajectory; it's the late-planted crop that is unusual! The most at-risk will be the combined ~1 million or so corn acres that are not yet dented in ND/SD/NE. Another 10 million acres or so are not yet considered 'fully mature'; yield losses will be less severe, but quality and drying issues will arise. Stay tuned!

Thursday late morning, the USDA will publish their monthly crop production update, as well as a full S&D. The most important thing to watch will be the trend in supply; the USDA has managed to trim the supply side two reports in a row. Some suspect they may make it three consecutive, though depending upon whom you ask, they could reduce yields, harvested acres, or both. It will also be interesting to see how they incorporate the lower-than-expected Sept 1 Quarterly Stocks data in the 18/19 S&D. We suspect they will have to raise both feed/residual and ethanol demand considerably. We would also expect the USDA to start trimming back 19/20 (current year) demand some, likely starting with exports given a sluggish pace there. CONAB (Brazil gov't) will also be out with their crop thoughts very early morning; they will offer their first look at 19/20 Brazil S&D.

Export sales in the morning will likely be an afterthought. We would look for corn sales to stay on a fairly normal trajectory, likely barely topping 500,000 metric tons. China sentiment flipped from one of extreme pessimism yesterday to a more optimistic tone early morning, as the Chinese would reportedly consider purchasing $10 billion worth of U.S. ag products in exchange for a delay in the latest round of U.S. tariffs. Such a mini-deal would likely favor China more than us; indeed, it seemed like such prospects were fading after-hours with talk of 'lowered' Chinese expectations.

The weekly EIA report was friendly for ethanol; the production bounce was once again less than expected, and ethanol stocks incurred a record-large weekly drawdown. 'Top-step' ethanol futures made new recent highs after the report, sending crush back to the highest levels attainable since the early spring floods. We think most Midwest producers can earn a solid 15-25 cents/bu, when including cash inputs and fixed costs, or 5-10 c/gal in those terms. Forward margins remain lacking. Livestock was firm, particularly Feeder Cattle, likely as traders eye the Midwest storms.

In the options pit, volatility sold back off some after yesterday's rally. One house bought 800 dec 425 calls vs selling 2400 dec 500 calls, paying 1 cent net. Another player paid 1 1/2 for 500 dec 365 puts. Calendar spreads gave back a little of the prior day's rally, too. Corn lost to the beans, and to most wheat futures. Technically, we still see Dec Corn support in the $3.75-$3.80 for now, which will likely cushion a bearish crop report surprise. Next major area of resistance is in the $4 CZ area; no doubt may run a few stops if we trade over that level? A friendly crop report, by the same token, could prove to be that trigger?