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Corn Rally Extends as Funds Adjust Position

07/01/2020 | 03:27pm

By Kirk Maltais

 

--Corn for December delivery rose 2.9% to $3.60 1/2 a bushel on the Chicago Board of Trade Wednesday, as grains traders continued to digest the data released by the USDA on Tuesday and started to reverse course on the largely short position held in corn.

--Soybeans for November delivery rose 1.9% to $8.99 a bushel.

--Wheat for September delivery rose 1.4% to $4.98 3/4 a bushel.

 

HIGHLIGHTS

 

Changing Course: Managed money funds are quickly changing course on their investment patterns for corn and soybeans, said AgResource. "CBOT futures are deeply in the green on Wednesday as funds aggressively added to their soybean long and exit their corn short," the firm said, which estimates that funds bought anywhere from 28,000 to 32,000 contracts of corn, as well as 9,000 to 10,000 contracts of soybeans this afternoon. As of June 23, managed money funds had a net short in corn of over 285,000 contracts - leaving ample room for funds to react to a more bullish than expected acreage report from the USDA on Tuesday.

Synchronicity: The relationship between corn and soybeans trading on the CBOT drove soybeans higher Wednesday. "The biggest thing holding beans back was the exceedingly bearish outlook for corn," said Doug Bergman of RCM Alternatives. "Yesterday's report changed that, which should allow beans to make their next leg higher from here." Yesterday's acreage report showed that 92 million acres of corn have been planted in the U.S. as of June 1, down 5 million acres from the USDA's previous forecasts. Soybean acres were projected at 83.8 million acres, below analyst guesses.

 

INSIGHTS

 

Cutting the Surplus: U.S. ethanol inventories are now at their lowest level since January 2017, according to data from the EIA. Inventories dropped another 870,000 barrels this week, putting them at 20.16 million barrels - the lowest since the week of January 6, 2017. The consumption of leftover ethanol barrels is good news for U.S. corn, which has held a bearish view of ethanol demand in the U.S. since the coronavirus outbreak forced many plants to shut their doors either temporarily or permanently. Ethanol production also continued to recover, although it only grew by 7,000 barrels per day this week, rising to a rate of 900,000 barrels per day.

Demand Drop: Export sales of U.S. soybeans will likely be lower than the totals of previous weeks, according to grains traders surveyed by The Wall Street Journal. Traders surveyed expect anywhere from 750,000 metric tons to 1.4 million tons of soybeans to be reported sold. While this is comparable to last week's total of 1.16 million tons, it's well down from totals of above 2 million tons seen in previous weeks. This would be because of China's possible absence from the export market - with the only new sale the USDA as confirmed to China in the past week being 132,000 tons of soybeans for delivery during the 2020/21 marketing year last Friday.

Losing Ground: Brazil's trade surplus widened in June as imports fell during a month that typically sees strong exports of soybeans, according to the country's economy ministry. The country recorded a surplus of $7.5 billion in June, after a surplus of $4.5 billion in May. Brazilian exports were $17.9 billion last month, unchanged from May, while imports declined to $10.4 billion from $13.4 billion. Brazil's real has weakened against the dollar in recent months, partly because of the impact of the coronavirus pandemic, making imports more expensive and exports cheaper.

 

AHEAD:

 

--The USDA will release its latest weekly export sales numbers at 8:30 a.m. ET Thursday.

--The Chicago Board of Trade will close early on Thursday in observance of Independence Day, staying closed on Friday. The exchange will reopen on Monday.

--The USDA releases its weekly grain export inspections data at 11 a.m. ET Monday.

--The CFTC will release its weekly commitment of traders report at 3 p.m. ET Monday.

--The USDA releases its weekly crop progress report for the 2020/21 crop at 4 p.m. ET Monday.

 

Jeffrey Lewis contributed to this article.

 

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