Most years it would be economic blasphemy to suggest buying corn futures going into harvest, when futures normally make seasonal lows on heavy farmer selling pressure. But this has been an unusual year to say the least! For the past month, cash buyers have bid aggressively for limited farmer selling while managed Funds pretty much have futures to themselves. They’ve gone from 1 billion bu. net long ahead of August WASDE to half a billion bushels net short since then and little commercial buying to absorb it. Commercials are buying in the cash market, as evidenced by very strong cash basis for corn.
Fundamentally-speaking, we had our biggest ending stocks forecast with USDA’s very first WASDE balance sheet for 2019 in May: 2.49 billion (a 62-day supply at forecast usage of 14.7 billion bu.) and an avg farm price forecast of $3.30 per bu.
But with tremendously delayed planting and lower yields, the August WASDE put ending stocks at 2.18 billion (a 56-day supply) and an average farm price of $3.60. Yet futures have steadily declined since then to make new lows in the December contract this week, as shown in Fig. 1 below. The Stochastics oscillator has been in an oversold “coma” the past month!
Figure 2 gives an equally puzzling perspective.
Notice the weekly chart Stochastics oscillator is also deeply into oversold territory, territory it didn’t even reach in May when supply prospects were greater and USDA’s farm price forecast lower. Stochastics are lower than in September of 2018 and yet ending stocks for 2018-19 are projected at 2.36 billion bu. and a 61-day supply vs. the 56-day supply for 2019-20 in the August WASDE.
So, what will USDA’s September 12 WASDE show?
Likely smaller yields. The Pro Farmer estimate following their annual Crop Tour put the corn yield at 163.3 bu. per acre, down 6.2 bu. from USDA August estimate. The just-released survey by FC Stone put it at 168.4, down 1.1 bushels from August WASDE. Between the two, I would favor the Pro Farmer estimate for a couple of reasons:
- The Pro Farmer estimate was derived from over 3,000 actual field samples pulled by tour participants, not just a survey of yield estimates based mostly on crop “appearances”.
- The most common observation throughout the Pro Farmer tour daily reports were fields that “looked better from the road than what we found taking actual yield samples.”
One last reason corn futures may prove a good buy now: Light harvest selling.
We cannot forget that huge spring rally on planting delays likely pushed many farmers who managed to get their crop planted on time to price more of their expected crop than they normally would; especially since nearly all farm market advisory services were urging such sales. Among those farmers held back from planting, who priced only cautiously, they will be VERY reluctant to sell more now, with futures even lower than they were before the rally began last spring! Who could blame them? They’ll be tight holders.
Harvest deliveries may be mostly corn already priced, pressuring basis more than futures.
Meanwhile, all those managed funds accumulating a big net short position could start buying back at any time. All it will take trigger fund short covering is for the market to stop going down. Bullish news is not required. With stochastics and other technical indicators showing corn “oversold”, that could start any time now.
Dan Manternach, President
Perfect Fit Presentations, LLC
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