05-29-2018: July Corn: Ending Stocks Will Decline Very Slightly

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Point & Figure

Internal Progrm
Third System

Historic Range

Random Chart
Calendar Spread

Level Table
Other Factors

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Where corn prices will go next seems a bit of a mystery to analysts. But it is clear that a recent runnup in corn prices is due to bad weather in Brazil, a major competitor for exports with the U.S., and a willingness of China to import more U.S. corn in spite of trade war threats from the Administration. The latter failed to pass a new farm bill supporting farmers, where Republicans seem to be doing their best to screw up food price stability and U.S. competitiveness. USDA corn price predictions are optimistic but not overwhelmingly positive, hopeful that ending inventories will decline slightly.

Intermarket Analysis

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

Parabolic Chart

July Corn:

Parabolic Chart

Nirvana Chart

July Corn:

Initial Chart

News Analysis

Corn futures were riding high despite reports of favorable warm weather helping a new crop in the U.S. getting off to a great start. Previous support came from reports from officials at the China National Grain and Oil Information Center that China will boost imports of U.S. agricultural commodities, including corn, sorghum, and DDG's (distillers dired grains, used for animal feed). Since April 12th, China has sold 34.6 millioin tonnes of corn at auctions. Local traders have been stockpiling corn in anticipation of lower domestic 2018-19 output and higher new crdop prices. The Chinese Dalian corn market traded to a 10-1/2 week high and is up over 3.0% on the month so far.

The Buenos Aires Grain Exchange left their Argentine corn production unchanged at 32.0 million tonnes, with harvest progress seen at 34.9% compared to 34.1% last week. Brazil's Parana winter corn estimate was cut to 10.0 million tonnes, down 18% from last month's estimate as persistent drought curbed yield potential accordiong to the state's rural economy agencyu Deral. UkrAgroConsult reduced their total Brazilian winter corn production to 57.0 million tonnes from the previouis estimate of 60.2 million tonnes. Weekly export sales from the U.S. came in at 854,300 tonnes for the curfrent marketing year and 273,400 for the next marketing year for a total of 1,127,700 tonnes. China bought 88,200 tonnes of U.S. corn in the reporting period with 65,000 tonnes witched from an unknown destination. As of May 17th, cumulative sales stand at 94.6^ of the USDA forecast versus a 5-year average of 91.9%. The open interest in corn has recently shot up by 45,000 or so in the last two day period or so.

On May 18th, the House of Representatives defeated a farm bill brought to the floor by the House Agricultural Committee by a vote of 198 toi 213. A similar defeat occurred in 2013. There were issues surrounding the Supplemental Nutrition Assistance Program (SNAP) in extreme partisanship and polarization which aren't helping farmers. To pass the bill, Republican leadership needs to flip 20 votes. Introduction of the politically-difficult immigration issue into a farm bill debate adds significant uncertainty to a bill that was already struggling with partisan political challenges. There are total households participating in the SNAP program in at least 37 Republican districts in large percentages from which necessary votes are most likeliy to come. Projected reductions in SNAP benefits each year from 2019 on start at around $500 million in 2018 and gradually increase to $4.5 billion in 2028. An improving economy has resulted in the steady decrease in the unemployment rate as well as SNAP participation. However those facts do not appear to have helped the debate over proposed SNAP reductioins.

The USDA recently said 81% of the nation's corn crop is planted, in line with average levels. There is severe drought in Argentina and dry conditions affecting Brazil's second corn crop planted behind soybeans. That could open up more sales out of the U.S. this summer and jump-start new crop exports in the fall. A move to end penalties on U.S. sorghum sales to China should remove one competing feed grain from ration mexis and ethanol feedstocks this summer. China's corn surplus is shrinking as it ramps up ethanol production just as farmers cut back seedlings and face dryi conditions in the northeast that could reduce yields. Every little bit of news like this helps to tighten global inventories.

The USDA is optimistic for corn production in eight big corn-producing states it follows. But there are wet conditions ifrom Michigan into Wisconsin, northern Iowa, and southern Mennesota, while a fairly wide swath from central Indiana into Kansas is dry. Overall in the U.S. corn planted acres are diminishing oiver the last two years as well as yields. Tightening corn stocks into 2019 give new crop futures a chance for a rally, but old crop prices are nearing the top of their projected selling range. Ethanbol stays very competitive for blending as gasoline has a seasonal rally. Ethanol is trading at a discount to gasoline to encourage blending.

Last March, the USDA said growers would plant fewer acres to corn and soybeans this year tan a year earlier. This was surprising and caused futures prices to jump hgiher a bit at that time.

Higher futures prices have been incentivizing more farmer sales of corn at Illinois river terminals. Weekly corn exports posted old crop s ales at 33.6 million bushels, plus another 10.8 million bushels of new crop sales in the latest weekly reporting. Old crop sales were 13% below the prior week but 3% ahead of the four-week average. Corn export shipments were even higher at 57.8 million bushels, but that was 6^ beow the prior week's results and 99% below the four-week average. Mexico was the main destination. Europen Union corn imports are up significantly so far in 2017/18, reaching 606.3 million bushels as of May 22nd. That's nearly 44% more than had been imported at this time last year.

The U.S. corn crop is projected smaller in 2018/19 at 14.0 billion bushels on smaller area and lower yield by the USDA Economic Research Service. Supply is 675 million bushels below last year at 16.3 million bushels. Declines in feed and residual and export prosplects are partially offset by a strong outlook for corn used for ethanol, resulting in a 175-million bushel decline in disappearance to 14.6 billion bushels. Carryout is pegged at 1.7 billion bushels, 500 million below last year. The midpoint of the forecast price range for corn is $3.80 per bushel, or $.0.40 higher than last season.

U.S. corn exports face tough competition from Argentina, Ukraine, and Russia whose combined exports are anticipated to increase by more than 8 million tons in 2018/19. But poorer conditions in Brazil are increasing U.S. corn export prospects. World ending stocks of corn are led by a decline in China.

The term "disappearance" often comes up in grain market projections. It refers to the total demand use for a commodity (including exports). Total supply and use result in a calculation for ending stocks for coarse grains (corn) that were 198.94 metric tons in 2016/17 and projected to be 164.75 metric trons in 2017/18.

Point & Figure Chart

570.0|                                                                  R  5/25
     | CBT - Jul-18 Corn, 5000 bu., c/bu.          Cm.=0.60  Lim.=24.0
     |           X X X X
     |           XOXOXOXO
     |           XO O OXO
     |           X    O O
     |           X      O
     |           X      O
     |           X      O
     |           X      O
     |     X     X      O
     |     XO  X X      O
     |     XO  XOX      OX
     |     XOX XOX      OXO
     |     XOXOXO       OXO
     |     XOXOX        OXO
     | X   XO OX        O O
     | XOX X  OX          O
     | XOXOX  O           O
     | XOXOX              O  XO
     |O O OX              O  XO
     |O   OX              O  XO              X X       X
     |    O               OX XO              XOXO    X XO
     |                    OXOXO      X     XOXOXO    XOXOX
     |                    OXO O      XO  X XOXO OX X XOXOXO
     |                    O   O      XOX XOXO   OXOXOXOXOXO
     |                        O      XOXOXOX    OXOXOXOXOXO
     |                        OX X X XO OXO     O O   OX  O
     |                        OXOXOXOX  O             O   O  X
     |                        OXOXOXOX                    OX X
     |                        OXOXO OX                    OXOX
     |                          OX                        OXO
     |                          OX                        OX
     |                          O                         OX
     |                                                    OX
     |                                                    OX
     |                                                    OX
     |                                                    OX
     |                                                    O
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 sell signal.

Cyclical and Seasonal Factors

We are headed toward a cyclical high and a seasonal down period.

Cyclicals Cyclicals Seasonals

Internal Program

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

Internal Printout 1 Internal Printout 2

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


Third System Confirmation

Our third system is working on a long-term sell 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


The point value is $50. Initial margin on a single contract is $792. Use of options is not advised.

Historic Range

Scale traders are not a factor 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. Except for a small blip in the latest data, large speculators with the best track record are remaining 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 down is imminent near a volatility low point.

Range/Volatilitiy Chart

Possible Future Prices

Random Chart

Option Recommendation

Our option trade recommendation is to Buy (1) Corn December 400 Put and Sell (1) Corn September 400 Put @ 3-1/8 to the buy side or greater.

o 1 o 2 o 5

Calendar Spread

What the Jul. - Dec.. calendar spread suggests to us is that buying the near contract and selling the far one is at most times not profitable, which we think is a sign that these futures may go down in the long run. The best time to enter or leave the above spread is when it is at -14.00 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -19.00 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be at the sell the far, buy the near point.

Level Table:

Level Table

The path of least resistance is up.
450.0|                                                                  R  5/25
 CBT - Jul-18 Corn, 5000 bu., c/bu.          Cm.=0.60  Lim.=24.0
340.0|-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= 0.500
                         1 1 1 1 1 1                                  
       5 6 6 7 7 8 8 9 9 0 0 1 1 1 2 1 1 1 2 2 3 3 4 4 5 5           5
       3 1 2 1 2 0 2 0 2 0 1 0 1 3 1 0 1 3 1 2 1 2 1 2 1 2           2
       0 2 6 1 5 8 2 6 0 4 8 1 5 0 4 2 6 0 3 8 4 8 2 6 0 4           5

Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary

Here's an intraday chart for a previous day ( 5/24 ).

Intraday Chart

                 Risk Versus Opportunity Report

                      CN8     July Corn

                      High Price:  416.5
                   Current Price:  406
                       Low Price:  384.5

                            Risk: -0.052
                     Opportunity: -0.107

                    (O/R) Ratio =  2.048

Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis - 1
Parabolic Chart + 1
Nirvana Chart - 1
News + 1
Point & Figure - 1
Cyclicals + 1
Seasonals - 1
Internal System 1 - 1
Internal System 2 0
Third System - 1
Historic Range 0
Commitment of Traders + 1
Range/Volatility - 1
Level Table + 1
Other Factors + 1
Total - 1
Place 18 July Corn on a Sell Watch with stoploss @ +18-1/4 above the get-in point when recent price is represented as "405.00".