Chicago Board of Trade Market News
Outlook: The warmer weather this week was not entirely undesirable because it has increased the maturity of corn in a season where there has been greater-than-normal discussion about the threat of an early frost. Warm and dry conditions are expected to start toning down this weekend, but the average U.S. corn crop condition is likely to decline further next week. This creates an increasingly awkward scenario for speculative traders who are still holding onto large short postions, because it is increasingly evident that a large, but necessarily burdensome, corn crop is being produced. Those traders would like to get out of their positions back down below $4.60 per bushel, but in order to get there, they have to add to their positions. A pool of traders adding to short positions and uniformly seeking to exit at a similar price level increases the prospects for volatile whip-saw price action whenever open interest is reduced. That is exactly what we saw happen this past week as the December contract rocketed up to $5.08 and then fell back below $4.80 while the corn crop’s maturity increased but conditions slowly declined.
Prices and basis can historically drift lower right into year-end when there is an ample harvest. This price action happened as elevators filled to capacity. This season is unque because it begins with many elevators in the Corn-Belt having empty bins. Of course, elevators make a significant portion of their returns from storage. A larger number of farmers also seem intent to store their grain into spring. Once grain is in storage, export competition can be less of a threat. Furthermore, U.S. new-crop corn export sales presently give little indicaiton of lost market share . Once in storage, anyone needing to purchase a feed grain is going to pay for it. As a result, the outlook is that harvest prices for feedgrains this season may actually be lower in September than they are in December.