Afternoon Corn: Get ready for a weather market Sunday night

Afternoon Corn:  Get ready for a weather market Sunday night

It was like Thursday never happened. Markets were firm overnight on frost jitters and China optimism, and quickly punished early-day sellers as the rally extended more, and more, and more. Corn futures finished the day with 16-17 cent gains, erasing the post-USDA decline and then some. In fact, this was a new two-month high close for corn. On the week, corn will notch 13 cent gains, which in turn helped extend the market's win streak to five weeks. Cash trade was steady/firm in the west, but tended to be lower in the east where harvest was picking up a little more steam.

CFTC Commitment of Traders data after the close was not surprising. Large non-commercial (aka "fund") traders were viewed net buyers of 24,715 corn through Tuesday (10/8). Funds liquidated old longs (-10k) and covered old shorts (almost -35k); this was a trend across the supplemental report - funds exiting both longs and shorts in all covered commodities. Commercial open interest picked up; they added 50,289 new corn shorts on the week. When including recent activity, we estimate funds are heading into the weekend still net short about 125,000 combined corn futures and options. Index (or long-only) funds were net buyers on the week of 20,495 contracts.

Prepare for a 'weather market' Sunday night. High winds and heavy snow will continue in the far northwestern Corn Belt into Saturday, while freezing temperatures expand to the entire western Corn Belt Saturday morning. Hard freezes will occur from the eastern Dakotas, large parts of eastern Nebraska, and portions of northeastern Kansas to central and north-central Iowa and western Minnesota Saturday morning. As we've discussed, about a million acres or so have not yet dented in this area, while only 58% of corn nationwide was considered fully mature by the USDA on Monday. Note, due to Columbus Day, we will not get an update on this report until Tuesday afternoon.

Adding to the excitement today was U.S.-China trade dialogue, which likely achieved more progress than many expected. The so-called "Phase 1" of a broader deal included "intellectual property, financial services, and big ag purchases," for the U.S. side, in exchange for a delay in the latest round of U.S. tariffs. There was also a limited currency pact reportedly included, with the U.S. considering lifting the "currency manipulator" status on China. More to what we care about, the Chinese were said to commit to buying ~$40-50 billion worth of ag products, though it did not specify what commodities would be included ('pork and beans' likely get top billing?). Unless weather is a bust, this should offer a friendly tone to the markets Sunday?

Elsewhere, markets of all stripes generally traded with a positive tenor on the U.S.-China vibes. Livestock broadly finished $1 higher; dairy and ethanol also rebounded. Spot margins in both industries are solid, if not spectacular. French corn harvest continues to drag along; just 14% done now versus 65% last year. South American weather looks good for planting, particularly in Brazil. Argentina corn is seen 24% planted; some think corn acres are declining there, as farmers look to save on costs amid political uncertainty. U.S. corn export trade remains lackluster; China, please buy some corn, too, ok!?!?

In the options pit, volatility surged back higher, making up for all of the post-report losses. Active trade noted in Dec/Dec CSO Puts. One player paid 6 ¼ cents for 1000 march 380 puts, covered vs 401 ½ futures. Another house bought a sizable package of March $4.00 and $4.20 Calls. Calendar spreads were firm. Corn gained on the beans (surprising, given the frost threat), and a little on the wheat, too. Technically, Dec corn support in the $3.75 held quite easily. Psychological $4 resistance looms ahead; imagine there are a few stops lurking up there that could get triggered on a sharply higher Sunday open (should it occur)? Next target for the bull would be the August highs just above $4.20 CZ.