11-16-2017: December Corn: Export Pace & Oversupply

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Introduction
Intermarket
Parabolic

Nirvana
News
Point & Figure
Cyclic/Seasonal

Internal Progrm
Third System
Margin

Historic Range
Commitment
Volatility

Random Chart
Options
Calend Spread

Level Table
Other Factors
Recommendation

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Introduction

Almost everyone now believes that corn prices will stay under pressure until next spring when planting intentions and weather may become a factor again. Oversupplyi is a problem. However, everyone among traders is beginning to appear to be on one side of a bearish trade expectation, which can always be a little dangerous in futures. Our technical indicators are balanced indicating the need for caution, and to break a "tie" we had to double-weight the news. Thus our sell recommendation is very weak. Corn prices have already taken a big hit, farmers taking some losses, and U.S. exports have become competitive again.


Intermarket Analysis

We fed Corn, Soybeans, and Oats into a neural network to get the following result:




Parabolic Chart

December Corn:

Parabolic Chart


Nirvana Chart

December Corn:

Initial Chart


News Analysis

Poor export pace and bearish increased supplies are behind a corn price meltdown. Prices have fallen to oversold levels. Weekly export inspections fell 18% in the latest week to 375,000 tonnes. They are also down 45% from last year. Ukraine corn yields have dropped below 24 million tonnes forecast due to heavy rains. As of Nov. 10th there, just 74% of the crop has been harvvested with producers still waiting for drier conditions to finish harvesting. But the weekly harvest in the U.S. was 83% complete in the latest report versus 92% last year. The ten-year average is right on the current harvest level. Wisconsin is the only state behind the harvest completion average with Northern Tier states at the 70% level.

Weather predictions are for below normal precipitation so harvest completion should have no problems toward the end of this month. Weekly export inspections came in at 375,951 metric tonnes verss a trade estimate of 500,000 to 700,000 tonnes. This was compared to 456,000 last week. As of November 9th cumulative corn inspections for the 2017-18 marketing year have reached 12.6% of the USDA total versus a 50year average of 16.3%. A speculative short position in corn continues to build. Analysts think we could see accelerated downside after the December futures contract expiration.

The WASDE Report (World Agricultural Supple and Demand Estimates) provided by the USDA forecast the 2017-18 corn outlook with increased feed and residual use and exports and greater ending stocks at 14.578 million bushels, up 298 million from the last month on a record high. Feed and residual use is raised 75 million bushels based upon a larger crop. Exports are raised 75 million bushels relflecting expectations of improved U.S. competitiveness, reduced exports for Ukraine, and increased demand from Mexico which has sharply lower sorghum production prospects. Ending stocks are up 147 million bushels from last month due to supply rising faster than use. A price of $3.20/bushel is projected. This report was issued November 9th.

A yield of 3.6 bushels per acre was much higher than most thought the projection would be in the WASDE Report for October. Overall corn production in the WASDE Report was up 2% over October.

According to a ETF Fund manager, this was a bearish report for corn supplies, but the initial price reaction was suprisingly muted, perhaps because this is the time of year when harvest ends but usage does not. From this time on until next summer the world will be drawing down on grain supplies. There tends to be a seasonal harvest related low point in prices in the fourth calendar quarter. This is especially true for corn. Foreign corn ending stocks are down from October, mostly reflecting declines in China, Vietnam, Candada, and Ukraine that more than offset increases for the European Union and Argentina. Global stocks at 203.9 million tons are up 2.9 million from last month.

Iowa and Illinois corn yield projections increased by 3 bushel per acre, while Indiana and North Dakota projections increased by 8 bushels per acre. Projected ending stocks levels have not been seen since the 1987-88 marketing year. Corn exports are projected at 1,925 million bushels, versus 2,293 million last marketing year. Use of corn for ethanol will be 36 million bushels larger than last year. There were substantially lower exports of Brazilian ethanol.

Low prices look to continue into spring when weather and acreage become significant elements in price movements. Wheat is about the only agricultural commodity trading higher. Nearlyl all crops are out of the fields except for some slowed corn picking.

East Asian marekts have been the foreground for competition between Brazil and the U.S. corn exports. South Korea and Taiwan are significant importers accounting for roughly 20% of the global corn trade. U.S. shipments to all three markets surged in 2016/17 as a result of competitive prices relative toi Brazil. An early end to the rainy season in the Center-West reduced exportable supplies from Brazil, resulting in a price premium to U.S. corn. However, Brazil's crops have recovered along with their exports for the 2017/18 year with shipments to Japan, South Korea, and Taiwan garnering about 1/4 of Brazil's total global exports. U.S. corn exports are forecast down without the price advantage over Brazil from the previous year. Trade policies for both countries are favorable with zero export duties. FOB prices and freight costs are expected to play a prominent role as neither country, U.S. or Brazil, now has a clear advantage. Corn will replace wheat for feed grain in most Asian countries.

Current discussions regarding NAFTA and the Trans-Pacific Partnership further threaten corn exports. This could cause a trade disruption in the corn sector. Crop insurance and agricultural risk coverage as well as price loss coverage is the way a current farm safety net in this country would handle disruptions, but it is not designed for such a shock as trade disruptions caused by trade deal screwups.


Point & Figure Chart

740.0I                                                                  R 11/13
     I CBT - Dec-17 Corn, 5000 bu., c/bu.          Cm.=0.60  Lim.=24.0
     I
     I
     I   X
700.0I___XOX___________________________________________________________________
     I   XOXO
     I X XOXO
     I XOXO O
     I XOX  O
660.0I_XO___O__________________________________________________________________
     I X    O
     I X    O
     I X    O
     I X    O
620.0I_X____O__________________________________________________________________
     I X    O
     I X    O
     I X    O
     IOX    O
580.0IOX____O__________________________________________________________________
     IO     O
     I      O
     I      O
     I      O
540.0I______OX_____X___________________________________________________________
     I      OXO    XO
     I      OXO    XO
     I      OXO    XO
     I      OXOX   XO
500.0I______OXOXOX_XO__________________________________________________________
     I      OXOXOXOXO      X
     I      OXO OXOXO      XO
     I      OX  O OXO      XO
     I      OX    OXO  X   XO
460.0I______OX____OXOX_XOX_XO__________________________________________________
     I      OX    OXOXOXOXOXO
     I      OX    O OXOXOXOXO
     I      O       O O OXOXO
     I                  OXO O
420.0I__________________OX__O__________________________________________________
     I                  O   O
     I                      OX X
     I                      OXOXO
     I                      OXOXO
380.0I______________________OXO_O______________________________________________
     I                      OX  O
     I                      OX  O
     I                      O   O
     I                          O
340.0I----I----I----I----I----I----I----I----I----I----I----I----I----I----I---
             1          1    1
      113344501233467899144560677
      011312100012222201012120212
      800108582965250534982813306
Our computer tells us a non-conventional reactive approach works best for corn on p&f charts. Therefore the above chart is taken as giving a buy signal.


Cyclical and Seasonal Factors

We are headed toward a cyclical low and a weak seasonal down period.

Cyclicals Cyclicals Seasonals
Seasonals


Internal Program

Our best-performing internal program is "Pattern." It is giving a sell signal.

Internal Printout 1 Internal Printout 2

Results of "Pattern" for Corn (blue lines = successful trades, red, unsuccessful): (Always in the market.)

Results


Third System Confirmation

Our third system has triggered a buy signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


Margin

The point value is $50. Initial margin on a single contract is $908. Use of options is not advised.


Historic Range

Scale trade buyers are entering the market for the long term in this price range.

Historical Chart


Commitment of Traders

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Commercials with the best track record are getting increasingly-long.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3


Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that a change in major trend to up is imminent at a volatility low point.

Range/Volatilitiy Chart


Possible Future Prices

Random Chart


Option Recommendation

Our option trade recommendation is to Buy (1) Corn March 370 Call and Sell (1) Corn March 350 Call @ 7 .00 to the sell side or greater.


o 1 o 2 o 3 0 4 o 5


The following is an effort to track previous option trade prices if positions were held indefinitely.


*** It should be understood that some of these trades may have gone through periods where they were profitable before moving out of the profitable range. This can be tracked by reading the "Option Trade" section of the corresponding article and noting on the option graphics chart shown there the corresponding profit or loss for previous underlying commodity prices. Thus any of the above trades might be or have been profitable if terminated at the right time, underscoring as with all commodity trades the importance of continuous monitoring.


Calendar Spread

What the Dec. - Jul. calendar spread suggests to us is that buying the near contract and selling the far one is at most times profitable, which we think is a sign that these futures may go flat in the long run. The best time to enter or leave the above spread is when it is at -24.00 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -32.00 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be at the buy the far, sell the near point.





Level Table:

Level Table

The path of least resistance is down.
420.0|                                                                  R 11/13
 CBT - Dec-17 Corn, 5000 bu., c/bu.          Cm.=0.60  Lim.=24.0
     |
     |GGR
     |GGGHRR
410.0|GGGGGHPRRR_______________________________________________________________
     |GGGGGGHHHHHPPRRR
     |FGGGGHHHHHHPPPPRRR
     |EEEFFFGGGGGHHHHHHPPPPPPQRRS
     |EEEEFFFFFFFGGHHHHPPPPPPQQRRSS
400.0|EEEEEEEFFFFGGHHHHHPPPPPPPQQRRRRRSS_______________________________________
     |CEEEEEEFFFFFGHHHHHLMOPPPPPPPQQRRRRSS
     |ABCCDDEEEEFFHHHJKLLLMMNOPPPPPQQRRRRRSS
     |AABBBCCCDDDEFFFHHJKKLLLMMMMNOOOOPPQRRRRSSS
     |AAAABBBBBBCCCDDDDDEEEFFFHHJJJKKKLLLLLMMMMMMMNNNNOOOOOOOOOPPQQRRRRSS
390.0|AAAABBBBBBCCCDDDDEEFHJJJJJKKKKLLLLMMMMMMMMMNNNNNNNOOOOOOOOPPQQRRRS_______
     |AAAABBBBCCCDDDEHJJJJKKKKLLLLLMMMMMMNNNNNNNNOOOOOOOPQQQRRRRRSSSS
     |AABBBBCCCDDDEJJJJKKKLLLLMMMMMMMNNNNNNNOQQRRRRSSSSTT
     |AAABBBBBCCDDJJJKKKLLLMMMNNQQRRRSSSSTTTT
     |AAAABBBBCCCDDDJJKKKKKKLLLMMQQQQRRRSSSSTTTT
380.0|AAABBBCCCCDDJKKLQQQQQRSSSSTT_____________________________________________
     |ABBCQQQQQQSSSTTT
     |ABBQQQQSSTTT
     |BSTTT
     |TTTT
370.0|TTTT_____________________________________________________________________
     |TTT
     |TT
     |TUU
     |TUUUU
360.0|UUUV_____________________________________________________________________
     |UUVVVV
     |UVVVVVVVX
     |UUUVVVVVVVVVVWXX
     |UUVVVVVWWWWWWXXXY
350.0|UVVVWWWWWWWXXXYYYYYZ_____________________________________________________
     |UVVWWWWWXXXXXXXYYYYYYYYYZZZZ
     |UUVVWWXXXXXYYYZZZZZZZZZZ
     |UVVXXXYYZZZZ
     |XYZ[[
340.0|Z[[   <<<
     |
     |
     |
     |
330.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO=-0.045
       1 1 1 1                                       1 1 1           1
       1 1 2 2 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 8 9 9 0 0 1           1
       1 2 1 2 1 2 1 2 1 2 1 2 0 2 0 2 0 2 0 1 3 1 2 1 2 1           1
       5 9 3 8 2 7 0 7 3 7 0 5 9 3 7 1 6 0 3 7 1 5 9 3 7 0           3


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 7/11 ).

Intraday Chart


                 Risk Versus Opportunity Report
                ________________________________

                   CZ7     December Corn

                      High Price:  350.1
                   Current Price:  342.2
                       Low Price:  326.1

                            Risk: -0.047
                     Opportunity: -0.095

                    (O/R) Ratio =  2.038


Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis + 1
Parabolic Chart - 1
Nirvana Chart + 1
News - 2
Point & Figure + 1
Cyclicals - 1
Seasonals - 1
Internal System 1 - 1
Internal System 2 0
Third System + 1
Historic Range + 1
Commitment of Traders + 1
Range/Volatility + 1
Level Table - 1
Other Factors - 1
Total - 1
Place 16 December Corn on a Sell Watch with stoploss @ +18.00 above the get-in point when recent price is represented as "337.50".
____________________________________________________________________________________________________________________________________________W.G.