Last Tuesday’s weekly export inspection report showed 29.8 million bushels of corn was inspected and shipped last week.  This was up from the week prior at 20.9 and the four week average of 21.  Most went to Latin America, Mexico and Japan but key world player China was in for only 1 million bushel. 

CHINA ACTION

Clearly the Chinese are backing away as U.S. cargo ships continue to be rejected due to unauthorized biogenetic grain upon inspections at Chinese ports.  Without China in buying we can’t get inspection numbers high enough to be bullish for prices from a demand perspective.  

Best case scenario for a rally would come from trend following funds still holding a short position of 153 thousand contracts, and with month end next week, they may take profits.  Additionally index funds added 60 thousand longs to their big long position last week, suggesting corn breaks are limited and will be bought by them.  If weak demand wins out we will take out our 4.20 support and push to 4.06, our old low basis March futures.  If 4.20 holds, trend funds covering shorts and index funds buying could have us test resistance at 4.40 before month end.

GRAINS ARE LETHARGIC

The grain market—especially corn—has been lethargic. I still feel we need to have our feed needs covered.  We are currently experiencing a slight break in the bean market sponsored by the South American crop.  Rain is lacking in some areas there and abundant in others.  I would imagine that logistics and valuation of the Argentine and Brazilian currency will continue to keep the market in a see-saw motion. There is approximately 30% of American beans and 65% of the corn left in farmers’ hands.  My thinking is that the commercial does not own enough of the corn yet which in turn will prevent any huge move until they can accumulate more of the old crop.  I think any $.20 rally in corn will result in significant farmer selling.  I still feel that producers should retain ownership of the corn and look at the beans on further loss of the futures.

QUICK POSITION TRADE

For a quick position trade in the futures I propose buying March Corn futures to probe 4.40 by week’s end. To take advantage of such a movement look to go long March futures on a dip to the 4.30 level using a stop loss below support at 4.20, preferably at 4.19.
My thinking is that funds that have a sizable short position will book profits and cover before month end on Friday. If you go long and corn closes over 4.40, hold the position and raise your stop to breakeven, or a few cents higher of that of your entry price. If the market tests 4.40 but does not close above it by week and month end, exit the trade.

WEBINAR

For those interested Walsh Trading holds weekly grain webinars on Thursday’s at 3pm central time hosted by our Senior Grain analyst Tim Hannagan. Tim has been ranked #1 by Reuters and Bloomberg in 2011 and 2012 for his most accurate end of year price predictions for soybeans and corn. Registration is free and if you cannot attend live, a recording will be sent to your email upon signup.

RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING.  THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT.  WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.