Grain Spreads: Corn Demand Resurfaces

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Commentary

USDA increased its corn yield estimate in each of the last two Crop Production Reports, forecasting it to smash the prior record of 177.3 last year coming in with last Friday’s WASDE report at 183.8 bushels per acre. USDA has raised yields in both the September and October reports 16 times since 1970. Will the trend continue?  Despite increasing its corn production forecast, USDA’s ending stocks figure has tightened for four consecutive months. That has been a promising sign that demand has more than kept up with rising supply. Today the corn market traded in anticipation of a big export sales report and received the expected numbers. The USDA reports 2.22 million metric tons of corn was sold last week with the largest volume (900k) going to unknown destinations. Unknown for corn and soybeans is spelled C-H-I-N-A. Japan, Columbia, and Mexico followed up the top 4 sales for future shipment list. This brings commitments to 19.9 million metric tons (MMT) vs 16.2 MMT a year ago. Demand numbers like these should prevent ending stocks from growing significantly in the event USDA raises yields in the next WASDE reports. That said, the weekly charts look like the path of least resistance is lower. Patience is required as we get through harvest unless we start closing over key resistance. I’m looking to buy cheap corn calls on dips but will remain patient for now. 

Technical levels for December corn come in as follows for next week. Support is first at 4.00. A close under and its 3.93 and then 3.85. A close under 3.85 and the market challenges 3.76/3.74. Resistance is at 4.16. A close over and its 4.24 and then 4,32, then 4.37.  

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Sean Lusk

Vice President Commercial Hedging Division

Walsh Trading

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