- Harry Bennett
- March 13, 2023
- 9:21 am
- 10 min read
Lagging CFTC data showed long liquidation from the specs despite U.S. exports picking up!
Indices
Futures
Forex
– May Corn’23 (ZCK23) – May (ZCK23) has continued its sharp decline lower as the market tested 606.60. The failure to decisively push above resistance at 642.60 led to a greater sell off in what has been confirmed as a dead cat bounce. The market found support at the lower trendline (black line) but will need to see follow through buying to bolster the correction.
– The major moving averages (MA’s) have converged as the 100 meets the 200 day at 665.20. This in isolation looks to be a very bearish sign technical as the market currently trades 50 cents below the major MA’s.
– Last week, corn futures traded within a 34 cent range between 606.20 and 640.20. Daily Corn futures volume averaged 301,599 contracts across the board. Open interest spiked 56,451 contracts taking the total to 1,328,415 contracts. There was a spike in options trading on Thursday with 53,420 options, of which 29,854 calls and 23,566 puts.
– U.S. Export sales came in very strong last week with Japan (469,000 mt), South Korea (377,900mt) and Mexico (130,900mt) making large purchases. Sales of 1.412 million mt were above trade estimates and exports came in at a marketing year high 1+ mmt.
– Despite the strong export sales report and pick up last week, U.S. January exports to all destinations totalled 3.2 million mt. This is over 30% below the 5 year average and it is largely expected the figures got worse in February.
– The delayed CFTC data is now up to the 21st February, the data revealed the funds had liquidated some longs as their position stands at 215,928 contracts. We suspect this is a lot lower now given the dramatic sell off.
– The much anticipated WASDE report was released midweek. As the trade expected, the USDA lowered corn export demand 75 million bushels (mb) in addition to raising ending stocks for the crop by 75 mb.
– U.S. corn ending stocks came in above trade estimates at 1.342 billion bushels. The most notable revision was the USDA taking Argentinian corn & soybeans down far below market expectations. For corn., production estimates are now 40.0 million mt which was 3.41 million mt below the average guesstimate from the trade. Brazilian crops remain unchanged (table below).
– The revisions to Argentina’s production are justified considering whats happening on the ground. The Rosario Grain Exchange pegged Argentine soy and corn production to 27 million mt and 35 mmt respectively. This would suggest further revisions will be needed by the trade.
– The Safrinha crop is developing under stressful conditions, with Mato Grosso the largest producing state now 96.44% complete (Chart below). Delays continue with certain areas impacted by heavy rains, the state of Paraná is now at its slowest planting pace in 12 years at 37% complete vs 5-year average at 68%.
– The focus for the coming weeks will turn to Brazil as the Safrinha crop accounts for 75% of the Brazilian corn production number. Continued adverse conditions may cause a sharp upward pressure on the futures market, as further pressure mounts on the U.S. producing a large crop this summer.
– Despite its recent strength the USD index appears to have met strong resistance just below the 38.2% Fibonnacci retracements at 106.14. There is further resistance slightly higher up at the 200 day moving average (orange line) at 106.61. The selloff may continue if we see 103.50 break.
– Dollar weakness would often support commodities as they become more competive on the global stage. At present U.S. prices are currently very competitive in comparison with those from South America and demand may improve simply from a price differential.
– IMEA Planting Progress – Mato Grosso planting steams ahead at 96.44% complete despite the Safrinha corn planting progress remaining behind schedule. This increases the chances of frost risk as crop develops under stressed conditions.
Conclusion
The pick up in export demand is promising but the overriding concern is the market continues to fall significantly from its recent highs. This is despite the delayed planting in Brazil and a disastrous Argentinian crop. We suspect the funds have made a swift head for the exit on their long position which is evident by price action on the futures. A confluence of macroeconomic data continues to haunt markets and we suspect there may be a risk off sentiment forming. For now, the technical picture looks problematic and we suspect bulls will need some fresh news to reignite their optimism.
Written by:
Harry Bennett
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