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4506 Prime Parkway, McHenry, Illinois
(June 27, 1997) CORN: Hog herds did not expand as expected and this could be a set up for more inventory of grain. ALDL stocks estimate at 2560 is bearish compared to trader expectations as we assumed an efficient livestock feeder. If ALDL is right, then ending stocks should be around 910 to 932. ALDL acreage estimate at 81.9 is also bearish. Thus ALDL remains bearish corn. If, however, we assume the poor eastern crop conditions offsets the western ideal conditions and we have a trend yield at 128, then production would decline from 9.8 (USDA) to 9.6 and have a carry out of 1223. Futures have made it to our economic mid-year objective. Everyone should have seen our outlook projection charts. If the market continues to follow the pattern as predicted, expect a minor rally into July and then a move towards 220 by fall. Hold all puts and sell all rallies. Hedgers are 90% sold at 283 plus option profits.
Bill Biedermann TOP
195 Route 6A, Suite 6, Orleans, Massachusetts
(July 2, 1997) CORN: The USDA forecast lower planted acreage for the corn, but ideal growing weather and so-so exports combined with carryover selling from the beans to send the market to new lows. There is little weather premium in December corn, but at this time, little has been needed.
RECOMMENDATION-Rallies should be treated as rallies in a bear market unless exports pick up dramatically or a weather problem arises. Look for selling to appear near 241, 246, and near 250 basis December. Corn bulls should consider buying December calls, as they're fairly cheap. Futures traders should wait for a rally to sell, or if bullish, wait for a reversal as a signal that a low is in place.
M. Steven Morgan TOP
233 S. WACKER Dr., Ste. 2400, Chicago, Illinois
(June 26, 1997) CORN: The corn market has turned into a light volume trading range in the old-crop and eroding new- crop values. The only fundamental news around the marketplace is the growing weather as the USDA left both the world and U.S. supply/demand unchanged on the June 12th report. The next set of reports should have a market impact with the release of the stocks in all positions and final planting report June 30th.
OLD-CROP SITUATIONS-The main focus on the old-crop futures lies in the export projections, as the weekly export pace doesn't seem to be able to obtain the levels set by the USDA at 1.825 billion bushels. The weekly Export Sales report shows a different picture with export sales at 1.7 billion (delivered and undelivered).
Export Sales As Of June 12th
Netchange Commitments Undelivered This Week T.Y. L.Y. Sales 20.3 1717.6 2279.6 281.5 USDA Sales % Weeks Avg. Goal Of Goal Left Need 1825 94.1 11 9.8
When reviewing the countries that have undelivered commitments most have less than 12 million bushels except for Taiwan (35 million) and Japan (128 million). Both Taiwan and Japan have been active on a weekly basis adding new sales to their existing positions and cancellations seem remote. If this is true, then the export shipment will be nearing the upper 30's on a weekly basis. This type of demand will be supportive to both the basis and the board prices. Domestic demand remains strong, but with no report to indicate usage except the Quarterly Stocks report there is still a question as to the total use. There are early estimates indicating third quarter use may be slightly under the record consumption of 1.167 billion set in 1994/95 crop year. The main reasons for this rapid consumption comes from a 3% raise in poultry flocks, 2% raise in hog numbers, and an 11% quarterly increase in cattle supplies. If the Quarterly Stocks report does show a stock number near 2.460 billion (5.4 billion yearly), then this would be the third tightest in the last 10 years. There in one other important factor to the old-crop corn is the location of the remaining stocks. The eastern corn belt has seen supplies depleted by strong use and reduced supplies by last year's smaller production due to the wet spring. The futures are a price discovery of corn at a deliverable position (Chicago and Toledo). The tight eastern corn belt supplies will keep supplies from the deliverable location and firm spreads and board prices.
NEW CROP-The markets are making new contract lows on the perception of a new-record large crop in the offering. The best sellers have come from the fund arena, as the producer selling has been very light so far. The markets are relating the rapid early-season planting as a direct correlation to record yields. The year that most people want to compare this year to is the record 1994. That year we saw a record production of 10. 1 billion bushels, but it must be remembered that the crop was raised 400 million bushels from the October to the final on ideal weather conditions and an extended growing season. So far this growing season has seen cool temperatures that have slowed crop growth, damp conditions in the eastern corn belt, and very dry conditions in the western half of Iowa, Nebraska, and Minnesota. The current forecast remain favorable for most of the corn belt with no signs of extreme heat or dryness.
The world crop conditions have been good except for the northern areas of China where dryness is a concern. The demand picture looks very strong with the weak price outlook and any problem with world weather will create shortages. It is very early in the growing year to assume the balance of the year will not have a crop scare.
PRICE PROJECTIONS-The market has seen a major price decline on fund and speculative selling. This selling has placed the market in an oversold position and heavily short. The speculative short position has put the market in a vulnerable position for a short covering rally on any weather concerns. The December board under $2.50 has very little weather premium, as the downside risk with a 10 plus billion crop is $2.25. July corn has the most price potential with the small deliverable supplies. The farmer holds the key to market direction. When the cash market needs bushels, it will depend on the producer selling as the CCC has sold its remaining reserve stocks. This tight holding will widen the old- crop/new-crop spreads, basis and then a board rally. I feel prices have fallen too far too fast to join the selling and would wait for further crop development to make a marketing decision.
Doug Price TOP
One New York Plaza, New York, New York
(June 30, 1997) CORN: PRICE OUTLOOK-SHORT-TERM-July, September and December corn are oversold and could turn around from a technical standpoint. However, the price charts appear negative, especially with December taking out key psychological support at $2.40 per bushel this early in the growing season.
-Corn futures have made nine new contract lows in the last 10 sessions. Current fundamentals are bearish and should keep pressure on the market. There is no fundamental reason to establish long positions.
-In the short term, corn futures will likely seek lower levels. There is probably another 5-8 cents downside risk between now and the July 4 holiday weekend.
MEDIUM-TERM-Expect to see corn futures find support in the form of weather concern in July as the pollination period approaches. Historically, July corn rallies about 30 cents from the May low ($2.64) to the June/July high; this would project prices to the $2.90-$2.94 area, basis July, and $2.75-$2.80, basis September.
LONG-TERM-Assuming the United States has normal weather during pollination, expect to see a sharp sell-off into August, followed by a move to new contract lows at harvest. December corn has the potential to reach the $2.20 mark this fall if production is close to the USDA's current estimates,
RECOMMENDATION-Although the corn crop currently looks very favorable and both short- and long-term weather forecasts would favor high corn yields, this corn crop has yet to pollinate. Pollination occurs in July, a month that can be hot and dry-conditions that are detrimental to corn pollination. The weather premium has been beaten out of the market, and there is little room for adverse weather.
In anticipation of a crop-scare rally at some point during July, we recommend buying September call options two to three strikes out-of-the-money. If adverse weather does not develop, these cheaper options will be better to own than the more expensive at-the-money calls. Once we have a better idea regarding pollination and eventual production, we will again use futures contracts to capitalize on market opportunities.
Tom Levis TOP
209 South LaSalle, Chicago, Illinois
(July 3, 1997) CORN: Prices across the board are into new contract lows and at levels the bulls said "wouldn't" be seen again anytime soon. Seems that was said about cotton a couple years ago, the highest then since the Civil War we believe. They ended back to where they started eventually and so too grains. We've been negative corn for some time and conditions are more than ripe for record yields and a 10 billion bushel crop. Demand has been very slow, in part the consequences of the doubling of prices last year. Seller's had the edge last year, buyers have it this year. The screws turn. For the time being, we have been holding off pressing the December corn under the $2.40 area, in part that it's too early in growth, in part technicals and in part the 1 million less acres that went to beans. But that doesn't mean it's a buy. $2.25 or less a real possibility.
John W. Kleist
Sagamore Partners, Inc. TOP
575 W Madison, Ste 2607, Chicago, Illinois
(July 02, 1997) CORN: The trade during the past week in the com sector was very weak as the market continues to find pressure from excellent growing conditions for the upcoming large U.S. crop. The market was also weak from less than enthusiastic weekly export inspection figures and a USDA Grain Stocks and Planting Acreage reports that indicated no real problems ahead. If you couple the weak exports with the prospects of a large new crop given the fact that growing conditions have been near perfect and it equals lower prices which have been more than evident. The USDA indicated that planted corn acreage will be near 80.2 million acres which is up 1% from a year ago and the largest figure since 1985. The most recent Crop Condition report showed improvement from the previous week as 95% of the crop is in the fair to excellent category. Technically, December corn is in a downtrend, the trend would turn up on a close over $2.61.
FUTURES STRATEGY--Short CN at $3.10. Move protective buy stop down to $2.55¾ on a close only basis. Sell CZ at $2.46. If filled enter a protective buy stop close only at $ 2.59½.
OPTION STRATEGY--Short CU $2.80 at $.09. Maintain a protective buy stop at $.21.
Tony Montini TOP
COMMODITY RESOURCE CORPORATION
P.O. Box 8700, Incline Village, Nevada
(July 3, 1997) CORN: OUTLOOK-New contract lows have been scored again this past week in the corn futures market. This market is still acting like it is harvest time and the crop was a good one. The most important development period, pollination, will be coming up in the next week or so in the major growing regions. This crop is not made yet, and I caution getting too bearish at this time or at these prices.
STRATEGY-HEDGERS: New-crop hedgers are 40% sold in December futures. Our average price is $2.75. Alternatively we recommended buying the December 270 and 280 puts purchased for <<20 cents. No additional hedges are suggested at this time.
TRADERS: We are out, on the sidelines, and looking for signs of a near-term bottom.
George Kleinman TOP
27253 Timberlane, Monee, Illinois
(July 2, 1997) CORN: HIGHLIGHTS-Heavy fund selling today failed to push prices lower.
TECHNICAL ANALYSES-TRENDS (September '97 and December '97): Long-term down, intermediate down, short-term down.
FUTURES (September '97): Close 234¾ [4-day change = _4½], resistance 238½, support 232¼. (December '97) Close 234¾ [4-day change = _3¾], resistance 239, support 231¾.
These markets were very oversold before easing today.
FUNDAMENTALS-BULLISH: Rain is needed in the eastern Corn Belt; topsoil moisture is diminishing with 9 straight days of warmth and high winds. A cooling spell is expected for several days. Today's mini-rally came from pre-holiday profit-taking, short-covering and good commercial buying following early heavy fund selling.
FUNDAMENTALS-BEARISH: Weather dominates the overwhelming bearish marketplace attitude. The U.S. has enjoyed near ideal weather to date-regular rainfall and warm temperatures. Crop conditions and crop progress data is very positive. U.S. average yield gossip now generally ranges 132 to 139 bu./acre with some traders expecting 145.
RECOMMENDATIONS-POSITION RECAP: Short old-crop (July) futures at multiple points in thie extended downtrend; rolled-over into September and also short new crop (December) at multiple points.
NEW: Sell/add September at 237½-oco-231½-stop. On remaining position, exit at first signal (trailing stop, parabolic or Margraf Exit Rule #2).
Ernest Margraf TOP
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