Chicago Board of Trade Market News
Outlook: The EPA’s proposal last Friday was not an unexpected event. Nevertheless, the nearby corn contract started off this week by taking another step down to a low of $4.1150 per bushel. Speculative traders have sought justification for bearish price action in the corn market and limited attention has been paid to the fact that the export sales pace for corn is currently above 65 percent of USDA’s annual estimate, which is about 20 percent ahead of the normal five-year average sales pace. A continuation of this sales pace will likely cause USDA to revise upward their corn export projections for the United States.
The attempt to shove the nearby corn price lower may also have had something to do with fact that December 2013 corn options were expiring this week, and traders who purchase out options with strikes below $4.20 like to see them expire in the money. Many $4.00 puts had been sold, but the market was finding it impossible to get there because the low corn contracts are attracting a good deal of demand. After an initial attempt to knock the December contract into submission on Monday, prices spent the rest of the week moving steadily higher. Bearish traders who were feeling extremely confident at the beginning of the week were feeling increasingly anxious by week’s end.
The fact is increasingly apparent to market participants that any action by the EPA is unlikely to have a major influence on ethanol production in the present 2013/14 season. Exports are strong and so is the cash basis for a large crop. South American corn is not competitive against current U.S. prices. Ukraine is competitive, but that is partly because of their more limited storage capacity. Global buyers who want to extend their coverage of quality corn at favorable prices are looking primarily at the United States.