Afternoon Corn: Gulf corn caught a bid today

Afternoon Corn:  Gulf corn caught a bid today

Price action was mostly defensive today, though most markets would finish well above session lows. Corn settled 6-7 cents lower; most contracts were roughly a dime above the intraday low. Managed Money traders likely took some profits on recent purchases; we think they are net long about 150,000 futures and options. CFTC will update this estimate tomorrow night. Cash markets were quite firm, particularly at the Gulf.

Much of the early weakness appeared to be centered around model runs that suggest the current 'warm/dry' trend in the U.S. will moderate as we head into August. Speculative at this early juncture for sure, but one thing for certain is the world weather picture is not lacking for excitement. Continued frost/freezes in Brazil have sent the coffee market ripping higher (up 20% in about one week), Henan province in China received another 40 inches of rain, and Western Europe is dealing with their own excess rain issues (while Black Sea next door dries down). Henan province grows roughly 9% of China's corn crop, though much of the initial damage was relegated mostly to the urban areas? Stay tuned!

The weekly export sales report did not help improve the early mood either, as total net corn sales were negative. Old crop saw a reduction of -88,500 metric tons, owing mostly to the cancellation of 160,000 metric tons from China. New crop sales were just +47,700 metric tons. Expectations were low, but not that low! Still, the market likely has bigger fish to fry, and in the end, new crop sales are still in very good shape at 16.1 mmt. We continue to think old crop will fall a little short of current USDA projections. It has been a long time since we have seen an 8 AM sales flash. Today's strength at the Gulf may hint at a little interest? Perhaps China is worried about Henan?

Elsewhere, end-user markets were more mixed. Dairy finally bounced back after an ugly break, Hogs were a little weaker, and Cattle a little better. Monthly Cattle on Feed report is due out tomorrow afternoon. Ethanol was lower, roughly tracking corn. We think most ethanol producers are losing a little money in the spot today, likely to the tune of about 5-10 c/gal, including all costs. Outside markets were mixed, leaning friendly, today.

In the options, volatility was a little softer again. "The Strangler" sold 500 Sept $5.20-6.00 Strangles at 20 cents and 450 of the $5.10-$6.40 Sept's at 11 cents. Another house bought 600 of the Dec $5.50-5.00 Put Spreads and sold the $6.60 Calls, paying 6 cents net. Calendar spreads were rather quiet today. Corn was the least ugly girl in the grain room today, gaining on both soy and wheat. On the charts, Dec Corn should now find some initial support on breaks back under $5.50; this was tested today and held. Much stronger levels are noted below at around $5.20. We still see some resistance at the very top end of the July 4th chart gap at $5.74 CZ. We would expect both Sept and Dec to struggle with $6 psychological resistance should the market continue higher from there.