December corn is trading 1 1/2 cent lower near 7:30 am CST. The market tried to sustain a move higher overnight but broke lower following the open of European markets. Dalian corn is trading lower. The Euro edged lower along with European stocks following data that showed Spain's economy shrunk by 0.4% in the 2nd quarter vs. 0.3% in the 1st. The US Dollar traded lower overnight and crude oil is slightly higher which is offering support to grain markets this morning.
December corn attempted to shrug off negative technical pressure yesterday but bulls ultimately gave in and headed to the sidelines. Sluggish export inspection numbers have provided ammo to the bear camp that suggest that rationing is taking place in the export market. The slow sales pace reflects a demand shift from major importers to South American and Black Sea grain. Morning news services report that a Ukrainian analyst has cut the grain export forecast for Ukraine to 21.15 million tonnes vs. 23.33 previous may have helped support. They also noted that the Ukraine corn harvest would not exceed 19 million tonnes and exports would total 12.5. The USDA estimates Ukraine corn production at 21 million tonnes and 12.50 million tonnes of exports.
Profit taking in bull calendar spreads has been the highlight since last week. The December contract has now moved to a discount to the March and the March contract has moved from a 10 cent premium to a 6 cent premium to the May. The unwinding of the spreads along with the steady tone of the cash market signals that new crop harvest is now underway and traders expect cash grain movement to pick up in the coming weeks. Decatur, IL corn was bid 55 cents over the September contract and Burns Harbor, IN corn was bid 20 cents under the September contract. Both locations held bids unchanged from the day prior. Basis levels in the Gulf of Mexico may see support in the short term due to the suspension of barge traffic from Baton Rouge, LA to the US Gulf and the temporary closure of multiple commercial export facilities. These actions are a result of Tropical Storm Isaac.
Harvest will see brief delays in the southeast and delta as Tropical Storm Isaac heads towards Louisiana and Mississippi. The weekly Corn Harvest report showed 6% of the corn harvest was complete compared to 4% last week and 2% last year. The 10 year average for this time of year is 2%. The weather forecast for the remainder of this week looks mostly warm and dry for the central and western Midwest which is favorable for harvest progress. Farmers note that the pace of harvest should pick up around Central Illinois this week. Heavy rain and high wind could push as far north as western Tennessee and Arkansas which could damage harvest ready corn in the area. The weekly Corn Conditions report showed 22% of the corn crop is rated good/excellent compared to 23% last week. The lowest for this time of year was 18% in 1988. South Dakota conditions fell sharply. Traders are placing less importance in the condition figures at this point but the warmer than normal conditions continue to stress maturing corn crops which could limit price declines in the short term.
Many traders are now beginning to push yield and production estimates lower with more and more traders believing that a combination of lower yield and less harvested acres could push production down to near 10 billion bushels as compared with the current USDA estimate of 10.779 billion. Traders also see a greater loss of corn in the harvesting process this year and poor quality will mean more corn will need to be fed to livestock to achieve the same weight. Reducing demand by another 300 to 700 million bushels from last months USDA estimates will be a difficult task. Corn volume dropped to 171,229 yesterday while open interest saw declines of 7,024 contracts. The lower trade, lower volume, and decline in open interest suggest the trade may not have conviction that this move lower can be sustained over a long period of time.
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