Afternoon Corn: Rather neutral report not enough to satisfy

Afternoon Corn:  Rather neutral report not enough to satisfy

'Rough day in River City' for the corn market, as a rather neutral USDA report was apparently not enough to satisfy new corn bulls after a ~40 cent bounce off the lows. Futures were a little soft going into the report, and dropped another dime shortly thereafter. Corn would finish the day 14 cents lower, erasing two week's worth of positive trade. Managed Money traders were estimated net sellers of 25,000 corn today, which would leave them net short 165,000 combined futures and options. Cash trade was mostly steady.

So, about that report. The USDA did theoretically keep the trend of "lower production" alive, trimming 19/20 production by 20 million bushels. This apparently did not satisfy a market looking for an average ~100 million bushel reduction. Breaking it down a little further, the USDA cut corn harvested acres by 200,000 (to 81.8 mil), but up-ticked yield 0.2 bpa (to 168.4). The other interesting factor on the domestic side would be how the USDA would respond to the sharply lower-than-expected Quarterly Stocks data from a couple weeks prior. They took the easy way out, increasing feed/residual by a near-like amount. Looking at the 19/20 balance sheet, the USDA made a few interesting tweaks, raising feed residual (+125 mil to 5.3 bil), lowering ethanol (-50 mil to 5.4 bil), and sharply curbing exports (-150 mil bu to 1.9 bil). The latter in particular was very much needed, in our view. The small overall cut to disappearance paled in comparison to the ~300 million bushel cut in carry-in stocks. The end result was a significant downward revision in 19/20 corn ending stocks to 1.929 billion, versus 2.114 billion in 18/19, and 2.140 billion in 17/18 (another trend??). Despite the bearish market reaction, the USDA raised their average farm price on corn 20 cents/bu from their prior estimate. World stats were clearly an afterthought; 19/20 world corn carryout was reduced to 302.55 mmt versus 306.3 prior, owing mostly to a commensurate decline in U.S. carryout expectations.
The next major market-moving event will likely be the weather tomorrow and Saturday. Some "upper 20" type temperatures are forecast for the Western Belt, extending as far east as W Minnesota and parts of Central Iowa. As we've discussed over the past week, this will put at risk the combined ~1 million or so corn acres that are not yet dented in ND/SD/NE, with significant yield losses possible on such late-planted crops. Another 10 million acres or so are not yet considered 'fully mature'; yield losses will be less severe, but quality and drying issues would likely arise. Will give traders something to talk about Friday and/or Sunday night! This may also make the USDA's yield increase in today's report look somewhat questionable?

The weekly export sales report likely helped contribute to a bad mood in corn early. Just 284,500 metric tons of corn were sold, mostly to 'captive' Latin destinations and Japan. Total sold + shipped so far in the young 19/20 marketing year is right near 10 mmt, though this is less than half the activity notched in the year ago period. Not great, but nothing new, either! There was plenty of confusion today over the U.S.-China trade negotiations; some are discussing a "currency pact". As part of said 'pact', the U.S. would delay the next round of tariff increases, and the Chinese would keep buying select ag products?

Elsewhere, CONAB's first stab at 19/20 S&D's found corn production at 98.4 mmt, which is down slightly from the ~100 mmt tally for the season that just ended. Argentina analysts are starting to trim back corn production ideas; farmers may plant cheaper beans amid political uncertainty, as well as some early drought. Livestock was mixed, but mostly weaker; hogs ignored a large Chinese purchase in the export sales report to close lower up-front? Both dairy and ethanol finished weaker, though given the sharp decline in corn, likely improved profitability for both industries today.

In the options pit, we had a traditional post-report "volo-caust", with Nov and Dec both dropping about 4.5%, while other actively traded months fell 2-3%. Post-report, one house sold 3000 dec 380 calls from 9 3/8 to 9 1/2 covered vs 382 futures. Pre-report had the normal mix of puts and calls around positions. Calendar spreads were weak between crop years; old crop lost a dime to new crop. Corn lost to both the beans, and the wheat. Technically, Dec Corn is testing the $3.75 support level we discussed yesterday. Suspect it should hold Friday with frost fears around? $4 CZ area will remain tough resistance going forward.

KJ