Santa Claus rally could help corn Be ready to sell brief rallies when they come By Bryce Knorr, senior grain market analyst

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1 Santa Claus rally could help corn Be ready to sell brief rallies when they come By Bryce Knorr, senior grain market analyst Rallies are always possible in corn, even in down markets. Trouble is, they don t have to amount to much or last very long. That s something to keep in mind while watching markets into the end of the year, when prices seasonally gain a little traction. Corn s rally off November cycle lows ran only two weeks and netted little more than a dime. So, modest expectations should be in order. USDA provided a little reason for stabilization with its Dec. 12 report that cut carryout 5 million bushels due to stronger ethanol production. But surplus corn left over at the end of August should still be huge, topping 2.4 billion bushels. Only two factors seem possible of changing the market s dynamics, at least until growing season weather becomes an issue a half-year for now. Jan. 12 reports from USDA will be the market s next benchmark, and they re typically one of the causes for a rally into January. Unlike the December update, this next release includes final 217 crop production as well as quarterly grain stocks. The unusual 217 growing season could always produce a curveball from this report, though yield changes in the past were less than three bushels per acre, higher or lower, from the last estimate in November. While decreases outnumber increases, historical patterns favor an increase. I ve modeled both outcomes in the supply and demand balance sheet in the full PDF of this report. Grain stocks likewise can be difficult to predict in advance. Once production is known, disappearance that can t be attributed to exports, feed, seed or industrial uses is assumed to be fed to livestock. Warm fall weather may have offset some of the impact of larger herds. But uncertain over this and production can spark short covering at the least. Funds have plenty to do on that front if they wish, after pressing bearish bets. This type of rally also doesn t last long, maybe five to eight days at most. But it could get some lift from tight farmer holding that forces end users to buy the board. Charts provide targets for these types of rallies. On March, the 1-day moving average and first retracement of the selloff from summer highs comes in around $3.65, which is also the objective on the nearby after March takes over from December. That would be a move of more than 15 cents off this week s contract lows, which could be too much to ask. But toss in 16 cents carry to July and it would at least present a place for a little hedging. The price is unprofitable, unless averaged in with sales made at higher prices. But the upside likely could be covered with calls; implied volatility is near historic lows, making opens a little more affordable. The second potential source of rallies over the winter would likely come after the USDA reports: South American weather. Argentina is the first on weather watch for corn. A dry start to the growing season looks like it is yielding to improved chances for rain in the second half of December. But yields tend to suffer there during years with La Nina cooling of the equatorial Pacific, which appears to be underway. Brazil s crop harvested in 218 should be smaller; how much so won t be known until planters are rolling in the U.S. Most of the country s corn is planted behind soybeans. Late first crop planting means some corn may not get planted or have development pushed further into the dry season. And acres are expected to be down anyway due to lower prices. A short crop in Brazil two years ago triggered a surge in U.S. corn exports. But even this wouldn t be enough to seriously jeopardize the large inventory remaining around the world. The outlook for 218 isn t much better. I recommended getting started on sales from December 218 was at profitable prices. Whether the market returns to those levels squarely depends on growing season weather. After five years in a row of above average yields, corn is due for year of lower yields. But that doesn t mean it has to happen in 218.

2 Corn Supply & Demand USDA Bryce's Forecast Area Bigger Smaller Planted 94,4 9,429 9,429 9,429 91,966 Harvested 86,748 83,119 83,119 83,119 84,55 Yield Beginning stocks 1,737 2,295 2,295 2,295 2,357 Production 15,148 14,578 14,721 14,366 14,58 Imports Supply, total 16,942 16,922 17,53 16,697 16,92 Feed and residual 5,463 5,575 5,542 5,53 5,65 Food, seed and ind. 6,891 6,985 7,46 7,46 7,116 Domestic, total 12,354 12,56 12,587 12,549 12,721 Exports 2,293 1,925 2,23 1,878 2,166 Use, total 14,648 14,485 14,61 14,427 14,888 Ending stocks 2,295 2,437 2,443 2,27 2,14 Ave. cash price $3.36 $3.2 $2.97 $3.19 $3.45 Stocks to use 15.7% 16.8% 16.7% 15.7% 13.5% Ave. nearby futures $3.6 $3.49 $3.42 $3.6 $3.81 Top Third $3.57 $3.76 $3.98 of Price Range to $3.87 to $4.8 to $4.32

3 3 Change in corn yields, November to January USDA reports

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7 7 U.S. Corn Stocks/Use stocks/use Corn Demand Industrial Feed Exports million bushels

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9 Average Corn Belt Ethanol Plant Margins $2.5 $2. $1.5 $1. $.5 $. $.5 $1. ETHANOL PRODUCTION GALLONS FROM EACH BUSHEL USED Sep 14 Feb 15 Jul 15 Dec 15 May 16 Oct 16 Mar 17 Aug 17

10 thousand barrels Monthly U.S. ethanol production and stocks 4, 35, 3, 25, 2, 15, 1, 5, Stocks Source: USEIA, Farm Futures Production Stocks WEEKLY ETHANOL PRODUCTION AND STOCKS Production thousand barrels thousand barrels/day /1/14 12/1/14 3/1/15 6/1/15 9/1/15 12/1/15 3/1/16 6/1/16 9/1/16 12/1/16 3/1/17 6/1/17 9/1/17 12/1/17 Ending stocks Daily Production

11 35 CHINESE CORN IMPORTS, SEPT-OCT (million bushels) Ukraine U.S. Total

12 Weekly Export Inspections in million bushels For week of 12/7/17 This Week Last Week Average Trade Guess This Week Last Year Rate Needed to Meet USDA Forecast Year-to- Date Total This Year Year-to- Date Total Last Year WHEAT CORN SOYBEANS ,27 Source: USDA, Reuters Weekly Export Sales (million bushels) AS OF WEEK ENDING 11/3/17 Wheat Corn Soybeans Old Crop Sales New Crop Sales Total Sales Prior Week Trade Estimates Rate to reach USDA Forecast Export Shipments Rate to reach USDA Forecast Commitments % of USDA est. 67% 54% 73% 5-year average for this week 68% 53% 78% Shipments % of USDA est. 45% 22% 44% 5-year average for this week 49% 22% 44% Source: USDA, Reuters

13 Total Corn Sales & Shipments (Year to Date) % 7% 6% 5% 4% 3% 2% 1% % Total Commitments % of USDA Forecast Corn Shipments (Year to Date) % 3.% 25.% 2.% 15.% 1.% 5.%.% Total Shipments % of USDA Forecast

14 New crop sales Total Next Year's Corn Sales (Year to Date) New Crop Sales Final Exports Final exports Unshipped Corn Sales Million Bushels

15 7, Weekly Corn Export Inspections 6, Thousand Bushels 5, 4, 3, 2, 1, 5-Yr. Avg S O N D J F M A M J J A Commitment of Traders - Corn 4 $5. net position in contracts $4.5 $4. $3.5 nearby futures -3 1/15 3/15 5/15 7/15 9/15 11/15 1/16 3/16 5/16 7/16 9/16 11/16 1/17 3/17 5/17 7/17 9/17 11/17 Source: CFTC $3. Index funds Hedge funds Futures

16 July Corn Bull vs Bear Years Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul 255 Bull Market Years July 218 Normal Year July Corn Futures Seasonal Trend Start Date +1 Week +2 Weeks +3 Weeks +4 Weeks +5 Weeks +6 Weeks 12/15 12/22 12/29 1/5 1/12 1/19 1/26 Ave. Gain/Loss % Up 23/43 23/43 21/43 23/43 22/43 22/43 % Dow n 19/43 2/43 22/43 2/43 21/43 21/43 Ave. Gain - Up year Ave Loss - Down Year (7.9) (9.8) (1.2) (1.9) (12.6) (13.2) Biggest Gain Biggest Loss (43.3) (47.) (49.5) (46.3) (44.8) (56.5) This table shows the typical seasonal pattern at weekly intervals from the start date, based on average daily futures prices from Gains and losses are based on the difference between the closing price on the start date and the closing price on the weekly date shown.

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