Corn

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Position

Grain Marketing (Old Crop): 100% old crop sold: Re-owned May futures at 437 1/4. This captured remaining good basis and allows for paper ownership into spring. 5/2 Exited May at 442 ¾ and rolled to July at 450. Grain Marketing (New Crop): Working September Short Dated $4.45 Put and $4.75 Call at 4 Cent Premium.

September corn saw a new weekly low close. A level not seen since 2020. December corn closed out the week near its lows, dropping 10 cents. The weekly charts suggest further downside pressure. The daily trend remains unchanged as corn continues to consolidate. A bearish sentiment looms over the market, with funds maintaining heavy short positions.

We are now in the heart of pollination. Last week, 41% of the corn crop was reported to be in its silking stage, which is above the 5-year average of 32% and matches last year's percentage. This week, the 5-year average for corn in the silking stage is 56%.

Our corn growing states are set to receive another round of adequate rainfall over the next five days, particularly from eastern Nebraska through Iowa, Illinois, and into Indiana. The temperature outlook from July 24-28, 2024, shows near-normal temperatures for most of the region, with some areas experiencing below-normal temperatures. This cooler trend, along with the expected rainfall, should reduce heat stress and support pollination and kernel development. Overall, the weather forecast is favorable for corn.

This past week, eastern Iowa and Illinois experienced excessive rainfall with heavy storms. The 7-day precipitation map highlights significant rainfall across much of the Midwest, especially in Iowa, Illinois, Indiana, and Ohio, with some regions receiving over 2 inches of rain. For the past two weeks, the USDA's weekly crop progress report has shown a 68% "Good to Excellent" rating. While there may be some trade concerns about potential storm damage, we don't anticipate any significant losses from the recent weather. It will be interesting to see how the upcoming crop progress report reflects these conditions.

Trade sat quiet this week as trading fund activity still looms over the corn market. Since January, trading funds have steadily deepened their net short positions. Despite occasional short-covering rallies, the bearish sentiment has persisted throughout the year, with notable volatility in their positioning from April to June, allowing for brief short covering rallies. Recent weeks have seen an intensification of this trend, with substantial increases in short positions. Given this pattern of aggressive shorting, it is likely that this week's report will show trading funds maintaining a heavy net short position. Considering the volume and open interest, we should not expect a large amount of activity in today's CFTC report. As of July 9th, managed money holds a new record short of 354,000 contracts, up by 17,000 from last week. Over the past three weeks, we’ve seen a 58-cent decline and an addition of 162,521 contracts.

The International Grains Council (IGC) increased their global corn production estimate to 1.225 billion tonnes, which is close to USDA’s 1.226 billion tonnes. This small difference shows a strong agreement on the ample supply ahead. Additionally, the USDA's view on beginning stock and production is set at 1.534 billion tonnes, which is 6 million tonnes more than last year. This increase signals a growing abundance in the global corn market, reinforcing the idea that we're heading into a period of plenty.

Earlier this year, Allendale released a study analyzing the typical trading range for December corn and November soybeans each year, from January 1 to expiration. By examining the highs and lows, we aimed to gauge potential downside for 2024.

Over the past 15 years, December corn has seen a minimum trading range of at least 87 ¼ cents. With the January 1 high at 502 ¼ and the recent low at 403, we now have a 99 ¼ cent range, meeting the minimum of the last 15 years and exceeding the range of four of those years. This analysis doesn't suggest that the low is in, but it provides context for understanding the market dynamics.

This week's export sales report, covering activity from Fri 7/12 to Thu 7/18, ended a 12-week impressive run. For immediate delivery, Brazil has a price edge due to shipping costs, but for extended delivery, we're nearly on equal footing.

Sales totaled 437,840 tonnes, below the trade estimate of 500,000 – 800,000 tonnes. While lower than previous weeks, this remains solid for a typically slow period. This week's sales were up 19% compared to the five-year average of 369,471 tonnes, following an impressive 12-week streak where sales were 216% above average.

The USDA's annual goal is 2.225 billion bushels, a 4% increase over the five-year average pace. Our year-to-date sales are keeping pace with this target. If remaining sales are 10% above the average, we’ll surpass the USDA's goal by 7 million bushels. Right now, we're slightly ahead of the USDA’s revised goal.

With seven weeks left in the old crop marketing year, our focus shifts to shipments. Year-to-date shipments are just 1% above average, and to meet targets, they need to ramp up to 29%. The past four weeks showed a modest 4% increase, but this week's shipment jumped to 32%. Given our strong late-year sales, which will ship soon, we're not too concerned at this point.

Corn for ethanol this week covered the second week of July. We saw production at 1.106 million barrels per day, reflecting a 3.4% increase compared to the same period last year. This is a promising sign, especially after the first week of July hit our target with a 2.1% year-over-year increase.

Taking a step back to look at the bigger picture, the first three quarters of this year saw corn for ethanol usage reaching 4.066 billion bushels, which is a solid 6.0% increase from last year. To hit the USDA's full-year goal of 5.450 billion bushels, we need to achieve 1.384 billion bushels in this fourth quarter, translating to a 3.3% increase from last year. Given the lower production efficiency this year, our estimate is that actual ethanol production only needs to run 2.0% higher than last year in this quarter. This is the benchmark we've set for our weekly ethanol reports in Q4: a modest yet crucial 2.0% increase.

June didn't quite meet the mark, with weekly production ranging between -0.9% and +0.5%, falling short of our target. But July is making up for this. With the first two weeks exceeding our expectations, we’re now optimistic about maintaining our whole-year outlook in line with the USDA's current estimate. We need to see this progress continues.

Excessive Rain:

On the topic of excessive rain, Minnesota and Missouri's June precipitation would fall under the USDA's definition of "excessive rainfall." In the past 73 years, there have been 7 years with "excessive rainfall" in June. In 4 of those years, yields declined from the prior year. However, in the years where July rainfall was below normal, we saw yield increases from the prior year. Conversely, in 2 of those years with above-normal July precipitation, yields were much lower. I must note, though, that this is based on just 8 years of data, so we can't draw any strong correlations from it.

On the August WASDE report we have only seen USDA address harvested acres 4 out of the last 25 years. It is unlikley we will start to price in harvested acreage until late august to early September.

Pricing:

Corn is finding a consolidation pattern. We have support at $4.00 and resistance at $4.16. Funds still sit on a large net short position. Trade waits to see what it's going to take to break corn out of this range. Trade is comfortable with the idea of trendline yields as this point. As pollination weather continues to be ideal and we rarely see large changes to yield or harvest acres on the August WASDE. There is no immediate need for trading funds to start to liquidate their net short.

Our 15-year seasonal trend is unfolding as expected, albeit running about 14 days ahead of schedule. We saw the first peak in mid-May, followed by a secondary peak in mid-June. However, as similar year studies suggest, predicting a sustained rally for corn in July and August is tricky. We're eyeing early September for a potential seasonal low. There might be a minor rebound from late July to early August, but a significant rally seems unlikely until then.

The recent price movement, with December corn lows at $4.03, aligns with our pricing models that associate a 2.3 billion stock level with $4.05. However, with the USDA reporting 2.1 billion, there's potential for prices to climb back to $4.45. Our balance sheets at trendline yields suggest a new crop ending stock of 2.049 billion bushels. We have to acknowledge that the trend in corn is down. Trade could start pricing in the idea of above trendline yields.

For in-year pricing, we often look to similar year studies: Our $4.66 and $4.72 downside targets for the recent low in July and December were exceeded, with actual lows at $4.22 ¼ and $4.46. The positive takeaway from our analysis of price action in other heavy supply years is that they all experienced minor rebounds despite a long-term downtrend. These rebounds typically occur in early spring. Unfortunately, in none of these heavy supply years was there significant interest in a July/August rally. The targets for a spring high are $5.07 and $5.12, and the May high came within 11 cents of those targets. We've updated our implied pricing based on stocks to use, which now paints a slightly better picture for new crop corn, suggesting a "harvest low" around $4.00 rather than below.

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