MARKET UPDATE

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Futures Prices Close

Overview

Soybeans and wheat both higher following yesterdays USDA report.

Corn on the other hand actually closes lower, topping out right at that 200-day MA target we had been mentioning.

Why was corn lower today?

Usually a report this bullish would’ve led to a big rally. But it did not.

It looks like the trade was already pricing in this bump in demand. Hence the recent rally.

If corn carryout would’ve remained unchanged, we likely would have taken it on the chin.

USDA Report

The USDA report was in my opinion friendly for corn and neutral to both wheat and soybeans.

The biggest surprise was of course corn demand. We thought the USDA should acknowledge demand but weren’t sure if they'd kick the can down the road.

Corn carryout fell from 1.938 to 1.738 billion. A huge -200 million bushel decrease from last month.

The demand increase came from:

+50 million bushels of ethanol
+150 million bushels of exports

Many weren’t sure if they'd pull the trigger on exports, with some questioning if demand was front ran before Trump. So the USDA must think these sales are here to stay.

Consensus was ethanol needed to be bumped and we got it. So great report for corn as the USDA acknowledged demand.

A 1.74 billion bushel carryout isn’t wildly bullish. But remember, not too long ago there was chatter about the potential for a 2.5 billion one.

As for soybeans & wheat, we didn’t see major changes.

We saw a slight bump to exports in wheat which led to US carryout dropping slightly.

The USDA also dropped China corn imports by -2 MMT to 14 MMT, so the USDA isn’t too confident China will be buying corn.

What's Fair Value for Corn?

A while ago I mentioned in my update that historically a 1 billion bushel carryout in corn roughly equates to $8.00 futures to ration demand.

Where as a 2 billion bushel carryout roughly equates to $4.00 futures.

So 1 billion = $8 and 2 billion = $4

This means that every 100 million bushels of carryout in-between equates to around 40 cents of value.

Before yesterday we had a carryout of 1.9 billion which meant corn's "fair value" was about $4.40

Today corn carryout is at 1.74 billion. Which means we have 250 million bushels less than 2 billion.

That equates to about +$1.00 higher than $4.00 (2 billion bushels) if every 100 million truly equals $0.40 cents of value.

The numbers broke down:
-100 million = $0.40 cents
-100 million = $0.40 cents
-50 million = $0.20 cents

Total: -250 million or $1.00 of value vs a 2 billion bushel carryout and $4.00 futures.

Based on this, one could suggest corn has a true value of about $5.00 as of today.

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We are looking for black oil sunflower offers.

Shoot Jeremey a call or text at (605)295-3100 with any new crop black oil sunflowers you have for sale.

With harvest over now, this is the time where you need to be proactive and have a marketing plan.

So if you'd like to talk through your operation, please feel free to reach out to us. It doesn’t cost you anything.

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Today's Main Takeaways

Corn

Like I have been saying for a long time, I still think demand will lead corn higher longer term. Which is exactly what we are seeing thus far.

Corn yield is +6 bpa higher than last year, but carryout is now actually lower than last year, (Current: 1.738 / Last Year: 1.80 billion). This is possible due to demand.

Demand driven markets last. Supply driven ones do not.

Short term, I could see us take a breather. From a technical standpoint we are overbought and due for a small correction.

Looking long term, one tailwind we might face next year is……………..

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In today’s update we go over why corn might be due for a short term correction, the possible breakout in beans, why wheat could be undervalued & more.