Afternoon Corn: Second close below $3.90; but hey, at least it didnt finish lower

Afternoon Corn:  Second close below $3.90; but hey, at least it didnt finish lower

Mixed/lackluster trade continues in corn. Into the morning, it looked like the market was setting up a Turnaround Tuesday 'on steroids', catching a strong bid early on China trade optimism. The enthusiasm did not survive much past the first hour of trade, settling into a steady-to-slightly-lower vibe the rest of the day. Corn would finish the day with fractional gains, averting a nasty-looking lower close. Managed Money traders were seen small buyers today, and will head into tonight net short about 115,000 combined futures and options. Cash trade was steady/weak.

Corn appeared to have little independent feature overnight; a little lower early, likely reflecting harvest pressure, but turned higher into the wee hours of the morning. Beans and wheat, in that order, were the early upside leaders, the former on positive China sentiment, the latter on continued heavy interest in world wheat (very little of which is trading out of the U.S.). There still is no 'written' deal in place, just an increasing sense that both China and the U.S. are being tugged together by economic pressures stemming from the trade war. Also worth noting that corn has not been mentioned as being part of China's initial 'shopping list', but the prospect of China becoming a regular U.S. corn customer has tantalized analysts for years. It can certainly happen, but we will believe it when we see it!

We will get some 'real' data tomorrow in the form of the weekly EIA energy report. We would expect U.S. ethanol production to continue to slowly recover from seasonal maintenance. We are looking for a ~3% wk/wk increase in run rates this outing. Stronger demand - both domestic and other - should be a major feature, and we would expect ethanol stocks to see a nice draw of about 2% wk/wk. The ethanol market apparently wants to see the report before making a major move; prices are at the lowest level in a month, though we still think most plants are earning a small profit in the spot. Forward margins remain negative, thanks to inverted ethanol and typical corn carries.

Weather is not exerting much of a pull on the markets at present. U.S. harvest weather should improve into months' end, though some suggest the Euro model is trying to build in more unwanted precip. Some traders complaining about violent winds, which can produce some lodging problems? Beneficial moisture will occur in Brazil over the next ten days, but there will be some areas of dryness that linger - most importantly in Mato Grosso do Sul. Planting is expected to pick up some steam, though follow-up precip will become more important. Argentina could use more moisture, too, but the need is not terribly urgent at this time and stage (early-mid planting).

Elsewhere, livestock was soft, headlined by a $2+ decline in Dec Hogs. Interesting, given the China cheerleading? US Dollar has bounced a little early week, but is still near a one-month low. Not near enough to win any corn business back from Ukraine or Brazil.

In the options pit, volatility was steady/mixed. One house rolled 500 Dec $4.10 Calls to the Jan $4.20 strike, paying 2 ½ cents. Another player paid 2 7/8's for 400 Dec $4.05 Calls. Calendar spreads were generally a little firmer after a correction lower. Corn was even on the beans but gained on the wheat. Technically, we have two closes below initial support at $3.90, which should give the bear some extra leverage. Did manage to avoid a Mon-Tues lower, so there is that? If the bear stays in control, we would expect significant buying between $3.70 and $3.80 in front of the November crop report (which is two-and-a-half weeks away). Psychological $4 resistance continues to loom overhead, and is the first spot to beat to generate more upside momentum.