Market Perspectives November 1, 2013

Chicago Board of Trade Market News

Outlook:USDA brought their export sales data up to date this week, and it showed that the sales pace is more than adequate to meet U.S. corn export projections of 1.225 billion bushels. As of last week, more than 65 percent of this annual sales number had already been sold. The normal sales pace is closer to 50 percent complete for this time of year. The key point here is that the export sales pace, domestic basis levels, ethanol production amounts and domestic feedlot returns give no indication that U.S. corn is overpriced and needs to buy either export or domestic demand.

U.S. corn producers are generally aware that the short-term action of futures prices is not always a logical reaction to fundamental factors of supply and demand. Instead, nearby price actions can sometimes be reactions to chart patterns and interactions between buyers and sellers. A prime example occurred this week as USDA reported bullish export sales figures that were well above expectations, and the nearby December corn contract was still shoved back down into new lows by large speculators. However, the actions of those traders makes sense when one considers that they want their paper returns to look good at month’s end, and they also lower prices so that system indicators remain bearish. As well, there is little opposition from commercial buyers because a lower priced front-month contract creates opportunities to buy more distant 2014 contracts at lower levels. Consequently, commercial end-users are willing to be hospitable and buy at lower price levels to satisfy the present needs of speculative short traders, so long as those short traders are willing to keep building their position. Such interactions can be somewhat of a delicate balancing act for both domestic and international end-users of corn because they desire to buy at the lowest price as far into the future as possible. Scale-down buying has paid off so far, but most of those buyers recognize that their time to finish acquisitions is limited until large traders with short positions in the nearby December contract decide that they want to start exiting.