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THE HIGHTOWER REPORT
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(October 22, 1997) CORN: World corn ending stocks are now projected to come in near 64 million tons, the lowest since 1975/76 and down 24% from last year with China ending stocks down 50%. With total world demand up 73% since the 75/76 crop year, the stocks situation looks extremely tight. World coarse grain stocks-to-usage ratio is now pegged at the lowest in history, even under two years ago when corn drove to all-time highs. The big difference this year is the larger supply of wheat as an alternative feed. In addition, the market has held back on higher prices as China is still selling some corn on the world market in spite of news that news sales had been halted. This is in sharp contracts to reports last week that China is now not offering corn on the export market and from recent USDA attache reports that China may begin an import program of near 500,000 tons soon. This uncertainty has kept a lid on price advances. As of Sunday October 12th, the crop was 27% harvested as compared with 24% on average for this time of the year and 25-35% trade expectations. Mexico corn production was adjusted lower by 2.5-3.0 million tons due to dry conditions in some areas and hurricane problems in others. With soybeans moving higher in conjunction with corn, South American producers are still expected to plant more soybeans and less corn. Brazil officials pegged this years production near 34-35 million tons from 36.5 million last year. In addition, imports are pegged near 3 million tons from 300,000 tons last year. The strong fundamentals for the corn market make corn an excellent long leg in spreads against wheat, meal or soybeans (2.5-1 corn/soybean ratio). In addition, the tight projections indicate that crop problems from the El nino to Australia, South Africa (traditionally #3 world corn exporter) or South America could tighten the feed grain situation even more.
SUGGESTED TRADING STRATEGY–1) Buy May corn 2.94 with an objective of 3.23½. Risk to 2.84. 2) Buy May corn 3.10 calls at 13 cents with an objective of 48 cents. Risk 6 cents on the trade.
For daily market updates of the Hightower Report of Comprehensive Commodity Research, call 900-225-2200, extension 3 for Grain Market Forecast. The cost per minute is $1.33.
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