How much downside, in corn price terms, is an extra 300m bushels of production worth?
That is, the US Department of Agriculture, in its flagship Wasde report on Thursday, surprised investors by raising its estimate for this year’s yield to a record high, and the harvest by the equivalent of 7.6m tonnes.
Extra output typically mean lower prices, with buyers having to compete less hard for supplies.
And, indeed, the USDA - estimating that enhanced demand would swallow up about half the extra production - flagged “expectations of improved US competitiveness”, ie more appealing corn prices in the US compared with other origins.
Stable priceStill, in Chicago, corn futures, having fallen to a contract low in the last session, stabilised in this one, in early deals at least.
The December contract stood down a further 0.1% at $3.41 ¼ a bushel as of 09:30 UK time (03:30 Chicago time).
It was some consolation to corn bulls in the last session that the USDA, in a separate report, also announced hefty US corn export sales last week, of 2.36m tonnes, best weekly figure in getting on for a decade, signalling that perhaps “improved US competitiveness” is here already.
However, the market thinking behind corn price resilience is that, at these levels, there is no-one around to sell.
‘Waiting to see the car crash’Benson Quinn Commodities, saying that in the last session “price action in corn pretty good considering the numbers”, viewed that this relative resilience “shows, maybe, a lot of pricing was waiting to see the car crash”.
Hedge funds were, after all, already net short more than 200,000 lots in corn futures and options, as of latest regulatory data on investor positioning, and large short (or long) positions often deter further entrants, being viewed as vulnerable to a reversal in thinking.
While open interest in corn futures did rise as prices fell in the last session, by nearly 26,000 lots, there was scepticism that that was all down to fresh fund short bets.
“Some funds were active covering shorts and commercials were aggressive buyers,” said Terry Reilly at Futures International.
Fund strategy questionIndeed, Rabobank, while terming Thursday’s USDA data “bearish” for corn prices, foresaw a reluctance by investors to sell for now....MORE
Here's the action in corn since yesterday's WASDE report: