Corn futures traded to new contract lows after the USDA report printed a 168.8 national yield and a carryout over 1.7 billion bushels on Wednesday. That ended the idea of a corn story for the immediate future. There is widespread skepticism about the production numbers, but for now the market will have to deal with them. The large spec has been whipped around lately in grains and I would expect some reluctance to jump back in with any meaningful commitment in the near term.
Corn will probably chop around for a while until there is more evidence on the yield front, probably following the soy complex as it trades the remaining weather forecasts for it’s production. Spreads are dead in the water, both old and new crop. The front end could firm versus deferreds if prices decline much further as the producer becomes more reluctant to sell at discounted prices. The Profarmer crop tour begins next week and may provide a reason to trade as reports come across, but probably won’t be enough evidence one way or another to change the overall trend.
The soy complex was shocked by the USDA report as well, with ending stocks being raised 50-million bushels. It was a 150 million bushel swing from expectations which was the biggest miss by the trade in 25-years. As with corn there is a huge level of skepticism about the bean yield and only time will tell. There remains some uncertainty about finishing rains to add bushels to yields in the Eastern Corn Belt where dry conditions remain in certain areas. With a 470-million bushel ending stocks number reported by the USDA, the market began to deal with the inverses in the new crop. Nov/Mar, Nov/May, and Nov/July all went from inverses to carries. This makes sense given the lack of a big export program at harvest for beans and meal, as we had seen the past two crop years. The domestic processor will not have to compete with the Gulf as hard to source beans as they did, most likely keeping carries in the Nov spreads.
It also calls into question the need for July6/Nov6 to be at a 28 cent inverse. I’m reluctant to bear spread the July6/Nov6 given how well the July/Nov performed during 14/15 when we expected a big carryout. I’m more inclined to look at the July6/Aug6 which has gone from a 9 ½ cent inverse to 1 ¾ on Thursday, look to bull spread that one if it gets to about even money or a small carry, particularly with yield uncertainty and weather still to trade.
The soy oil market can’t get out of the way of crude oil as it breaks or the huge crush to satisfy domestic demand for meal. Soy oil supplies, for now, are plentiful but a market might develop if the crush pace ever slows, particularly with production questions for other competing veg oils, but for now I don’t see a trade opportunity in oil spreads. In the meal market, look for Sep/Dec to be a buy if the outrights remain weak as selling should be concentrated in the new crop. The record number of crush facilities doing maintenance during Aug/ early Sep should help as well, and nearby meal spreads have been good since April.