Afternoon Corn: Old/new crop bull spreads extend recent retreat

Afternoon Corn:  Old/new crop bull spreads extend recent retreat

Whipsaw trade continues. Old crop futures had a rough outing, finishing 9 cents lower, while the new crop fared better again, settling 2-3 cents lower. Managed Money returned to the sell side, likely jettisoning 15,000 corn longs today, which would leave them net long an estimated 345,000 futures and options. Cash trade was mostly steady; prompt Gulf slots were down a penny.

Price action has been choppy to say the least of late, reflecting the typical late-winter dearth of headlines and still-unfolding South American crop situation. At least the weekly EIA report has been entertaining the past couple of weeks. Production rebounded +22.5% wk/wk to an 849,000 bbl/day rate, which would consume only 4.5 billion bushels of corn over a marketing year. Note, that this is still ~10% below the calendar year high. Blender demand jumped 12.3% wk/wk to a two month high, which helped inventories draw-down by -1.6% to 942 mil gal. Ethanol futures appeared to like the report, declining by only a penny today, despite a larger decline in the corn market. We think most Midwest producers are 'breakeven' today, when including all costs/inputs, with more perhaps leaning toward small net profitability than not.

The USDA will publish its regular weekly export sales report in the morning. We are expecting another pedestrian week of corn sales, though would not surprise if lower prices encouraged a little more business than the prior report's marketing year low. We think corn sales should come in at a net 700k to 900k metric tons. Market will also be watching to see if there are any more cancellations to key destinations (particularly those of the Asian persuasion). There were no 8 AM sales today, and there has only been one sale in the past three weeks. Algeria tendered for a nominal 30k corn today; most expect the business to go to the Black Sea or Argentina.

Elsewhere, end-user markets were mostly to the good today; hogs were the leader, while cattle/dairy squeaked out minor gains. Weekly USDA report found broiler-type egg sets down 2% yr/yr, with broilers placed down 3%, continuing recent downward trends in that sector. South American weather remains in an uneasy holding pattern. Most of Argentina's crop areas will see crop stress increase over the next week. Brazil has a better mix of rain and sunshine, but some farmers have been fighting safrinha (second crop) corn planting delays. China's corn markets have trended weaker of late on a stray ASF headline or two, as well as on anticipation of a rebound in acres there. We are less than one week away from the next WASDE update (Tuesday, March 9).

In options action, volatility was steady to a little weaker. CSO trade is starting to pick up again after the recent downswing in the N/Z spread. Week 1 (Fri expiry) Call Spreads were also popular today. Calendar spreads were weak, particularly between marketing years. Still no deliveries against March, though the H/K did weaken a little today. Corn lost to the beans but was roughly steady versus the wheat. Looking at the charts, the Feb report day highs near $5.70 in CK continue to loom as tough overhead. We need to see futures erase recent lows near $5.25 to get a look at more significant support levels just above $5. Old crop futures have been effectively range-bound for one month. New crop has been more dynamic, though support is more immediate, coming in around $4.55 to $4.60 CZ21. CZ21 is trading closer to its recent high than its low?

KJ