Afternoon Corn: Hurry up and wait for Phase One

Afternoon Corn:  Hurry up and wait for Phase One

Trade had a 'hurry up and wait' vibe, in front of tomorrow's "Phase One" deal signing between the U.S. and China. Corn flitted between small gains and losses all day/night, trading a two cent range on light volume. Ultimately, the market would close fractionally lower on the day. Managed Money traders will head into tomorrow net short about 90,000 combined futures and options. Cash trade was mixed, betraying little hint either way of major activity ahead of the signing.

Get ready; for better or worse, we will get the "Phase One" signing behind us tomorrow. The actual signing will be 10:30 AM Chicago time, and U.S. trade officials have confirmed the full details of the deal's contents will be made public at that timing. Despite this assurance, we still think specifics on commodity purchases will be minimal, and is unlikely to include the "what, when, and how much," traders are desperately seeking. For now, the grain markets are currently respecting the potential of the Chinese to alter S&D's with larger imports, as well they should.

But first, the weekly EIA. We think the report will likely be a little net bearish for ethanol, albeit not dramatically so. Production could uptick after a couple of down weeks, but likely by no more than 1%. On the bright side, demand should improve after the usual "Jan 1 plunge", likely increasing by close to 6% wk/wk. We think ethanol inventories will still build a little, though, likely increasing by about 1% to maybe 2%. Ethanol trade has been quiet so far this week, likely also awaiting clarity on China. This has maintained modest-to-elevated spot losses in the industry of roughly 20-30 cents/bu processed, or 10 c/gal.

South American weather remains rather neutral-leaning-bearish, with recent rains deemed favorable for the markets. A couple of prominent analysts have trimmed Brazil first crop corn projections slightly (by a few percent), but it is unclear if recent rains in dry RGDS province were included in their rubric? Northern Argentina will stay favorably wet into months' end, but the south is expected to dry down some.

Elsewhere, end-user markets were mixed; hogs finally caught a bid, cattle finished a touch higher, while both feeders and dairy finished a little lower. With South America nearly sold out and Black Sea grain prices in a general upward march, we continue to see U.S. corn export competitiveness improving, which should culminate in improved business (ie: back to more 'normal' levels) in early 2020. This will be welcome after a very poor calendar year 2019.

In the options pit, corn volatility was a little softer. One house bought 900 dec 400/480 call spreads vs selling the 360 puts, paying 13 cents net. Another player sold 1000 march 370 puts at 1 ½ cents. Calendar spreads held no real feature today. Corn was even on the beans, but lost ground to wheat. Technically, we still have a $3.80-$3.90 CH range, even after the USDA said their piece and in front of China. We are tickling the very top end of that at present. Weekly chart got into the gap last week but did not completely close it. This should give corn a slightly positive technical cast, but disappointed farmers will likely be armed and ready to sell a $4 corn board?

KJ