December corn is trading 3 cents higher near 7:30 am CST and Dalian corn traded down 1.25% overnight. Corn prices were supported overnight as soybeans bounced sharply higher and wheat rallied just after the European markets opened. Chinese equity markets were stronger and the support spilled over to the metal and energy markets as traders anticipate additional monetary easing from China after the poor economic data released yesterday. The US Dollar is trading lower which is adding support to the commodity sector this morning.
December corn saw minor gains overnight and most of the support came from a sharply higher wheat market after a Russian government official stated grain export curbs may be put in place this fall. Additional support was seen as outside markets took on more of a risk on tone overnight and the US Dollar traded lower. Corn was able to hold on to only modest losses yesterday after soybeans dropped by nearly 50 cents. Many in the trade feel that the US average corn yield is lower than the September USDA estimate of 122.8 bushels per acre but it's likely that a substantial amount of support spilled over from the wheat market as well.
Export demand continues to be a major limiting factor for the bull camp in the short term. Export sales yesterday were only 69,000 tonnes, cancellations were made, and sales were 360,000 tonnes less than what is needed each week to meet the current USDA forecast for this marketing year. South American corn continues to trade at a steep discount to the US but inelastic demand continues to be prevalent, specifically in Asian markets for feed. South Korea's largest feed maker issued a tender for up to 140,000 tonnes of corn overnight for shipment in late February. However, there has been a noticeable shift in the amount of corn used by some foreign customers. For example, Japan's usage of corn in feed fell for the 7th straight month to a 20 year low in July. The Chicago December wheat vs. December corn spread has widened back out to 140 cents over the December wheat contract. The recent increase in the spread has likely kicked wheat out of any new feed rations in the US which could be supportive for corn if feeders take advantage of weaker local basis levels.
Cash corn basis fell yesterday as futures moved lower as harvest progressed across the US Corn Belt. Decatur, IL corn basis fell by 3 cents per bushel to 25 cents over the December contract. Basis this time last year for central IL corn was near 10 cents over the December contract and the 3 year average is near 10 cents under the December contract. Corn bids were also lower in the eastern Corn Belt rail markets and at an animal feeder near Chicago as corn widened its discount to wheat.
Some in the trade suggest ethanol margins are getting better in specific markets given the weaker basis and futures prices. Iowa processor margins as of September 14th were near a 45 cent per bushel loss. Assuming a 25 cent per bushel drop in cash corn prices week over week along with a slight rise in DDG cash price, margins are likely only to improve by 10 cents per bushel due to the rise in natural gas and steep decline in ethanol prices.
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