December 4, 2015 CORN

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1 December 4, 2015 CORN TECHNICALLY SPEAKING The corn market turned in one of its best weeks since September, with March corn able to add 14 2 cents and close at $ Soybean products led commodities higher on the week, spurred higher late in the week by hard losses in the US dollar index on Thursday. Technical triggers were met on the move higher, leading to late week strength as traders did not want to go into a weekend with short exposure. The 20 and 40 DMA s were breached on Thursday and Friday, which will serve as support on any corrections lower. The large fund short sitting in the corn market had the potential to kickstart a March Corn Futures short covering rally, something we wrote about pre-thanksgiving. The short term trend is up, thanks to technical strength and outside market factors. EPA RULING The EPA raised conventional ethanol mandates this week, providing underlying support to the trade. This past spring the EPA made estimates on what the Renewable Fuels Standard levels would be as part of the updated mandate. On Monday, the EPA added ~500 mln gallons to their original estimate made last spring. That kind of ethanol volume would equate to over 100 mln bushels of corn consumed. In the grand scheme of things, that kind of number probably doesn t alter the 15/16 fundamental picture all that much, but certainly would be supportive. Editor s Note: One item that we always have to keep in mind is the RIN market, which is essentially a surplus of ethanol credits that blenders can purchase in place of actually blending ethanol into fuel. Following the EPA s announcement, the value of D6 RINS (corn ethanol credits) shot higher. The logic would be that higher mandates would require higher levels of ethanol blending. So for those who don t blend physical ethanol into fuel that would require the purchasing of the credits, hence higher RIN values. The RINS and/or ethanol imports could actually take the place of domestic corn demand, so the ruling may not produce higher corn demand estimates by the USDA. ETHANOL After last week s record performance, weekly ethanol production backed off to 956k barrels/day for the week ending November 27 th. The 1,008k barrels/day performance the week before chewed through over 105 mbu in a 7 day stretch, a record for the industry. The drop to 956k barrels/day is still considered enough to meet the USDA s current ethanol demand figure at 5,175 mbu. Despite production throttling back this week, stocks still rose to their highest level since mid-june, currently sitting at 840 mln gallons. That level of stocks would be considered above average and may dictate short term production prospects. One item contributing to the higher stocks level would be ethanol imports. In the last 14 weeks, imports have showed up in the DOE s weekly report 6 times, a more regular occurrence than normal. EXPORTS Corn export sales were near the low end of market expectations coming in, with 19.7 mbu reported. This follows last week s monster performance, which saw old crop sales over 80 mln bushels. Sales are

2 lagging last year s pace, but have caught up some in recent weeks. Cumulative sales stand at 672 mbu vs 895 mbu a year ago (-25%). In order for the US to hit its 1,800 mbu export target, weekly sales will need to average 28.2 mbu from here forward. Editor s Note: Given the sluggish pace of exports, many expect the USDA to lower corn export demand in next week s S&D report. Will the USDA continue to stair step into a correction (-50 mbu last month) or are they comfortable taking a more sizeable cut? Tune in next week! Weekly corn export inspections were dismal this week at just 11.8 mbu, well below estimates of mbu coming in. The performance brings cumulative shipments to just 264 mbu vs last year s pace of 358 mbu for the same week (-26%). The slow pace underscores the position of shrinking export demand for US corn. Cheaper supplies out of South America continue to get the nod, leading to the poor performance. In order to hit the USDA s export estimate, weekly shipments will need to average 38.4 mbu from here forward. SOUTH AMERICA Argentine corn planting remains behind average, which is consistent with last year s performance. It is estimated that 54% of the corn crop is in the ground vs 65% on average. Informa Economics updated their South American production estimates this past week. They lowered their Brazilian corn estimate by mmt, but this was offset by a 3 mmt increase to Argentine corn production. Supportive to the increase in Argentine production is the expected tax cut to corn exports by the newly elected administration CORN New crop corn poked its head back above the $4.00 mark late week, adding 13 0 cents and settling at $ Old highs still sit cents away, with many price targets resting anywhere from $ $4.20. Next Wednesday s WASDE report will provide updates to the old crop balance sheet. Many in the trade suspect that the carryout will continue to grow as demand estimates work lower. The old crop situation will set up price potential for new crop corn, which doesn t offer much today. Producers should continue to look for ways to secure profitable sales early on. Early acreage estimates floating Dec 16 Corn Futures around the trade are calling for expanded corn acreage in Competing crops like soybeans, wheat, and cotton are not helping matters here. BASIS Corn basis has been in transition the past 7-10 days as March futures take over as the lead month on many bid sheets. Since strengthening right after harvest, basis has softened slightly as near term needs appear covered. Some sales were likely made on the strength this week which may limit any improvement right up front. RECOMMENDATIONS Consider rewarding the market for the friendly move this week or look to place orders under resistance levels. The short covering rally that we discussed a few weeks ago is here. The question many will ask, how long will it last? A few things to keep in mind as we answer that question: 1) the amount of unpriced corn on farm will cap rallies and 2) carryouts are getting larger, not smaller. The USDA will

3 have an opportunity to confirm that last comment next Wednesday as they update demand items on their balance sheet. Look for a move higher in the ethanol numbers while exports will likely work lower. The rally we are experiencing right now is technically driven, so use technical levels as pricing orders. For March corn, consider the 100 DMA at $3.88. SOYBEANS LEAD ROLE Since posting a bullish key reversal two Monday s ago, January soybeans have added over 60 cents. What started as a sell the rumor, buy the fact type trade following the election of pro-ag Argentine leader Mauricio Macri, has extended into technical strength on the charts. Soybean oil continues to lead the products higher, as fundamentals have been more friendly to the edible oils market. Funds have covered short positions in soybeans, aided by a weak US dollar on Thursday this past week. The fundamental picture hasn t changed much in that two week stretch, Jan 16 Soybean Futures making this move one that we can attribute to outside market factors and technicals triggering some money flow. On the week, January soybeans were able to add 33 0 cents and close at $ EXPORTS Soybean export sales came in at 32.3 mbu this week, near the lower end of market expectations. Like corn, sales continue to lag that of the previous year. Cumulative sales stand at just 1,211 mbu vs 1,457 mbu the year prior (-17%). In order to hit the USDA s 1,715 mbu soybean export estimate, weekly sales will need to average 12.6 mbu from here forward. On the inspections side, soybeans turned in a respectable week with 67.4 mbu reported, above market expectations coming in. That total brings cumulative shipments for the year to 734 mbu vs 791 mbu the year prior. If you remember back a month ago, soybean inspection were actually ahead of last year s record export year. Some of the monster weeks observed a year ago just haven t been evident in 2015, which is how the inspections pace has slipped behind that of a year ago. In order to hit the USDA s export target, weekly shipments need to average 24.5 mbu from here forward. China took 47 mbu of this week s total.

4 US DOLLAR On Thursday, Mario Draghi of the European Central Bank disappointed the market when he indicated that EU stimulus measures wouldn t be as drastic as some were expecting. The quantitative easing program was extended by 6 months to March 2017, but the amount of the monthly purchases was not increased. That news led to strength in the Euro vs the US Dollar. Also on Thursday, Janet Yellen of the US FED indicated the likelihood of a US rate hike in the near future. One would expect a higher dollar to accompany higher interest rates in the US as America divorces itself from the US Dollar Index easy money policy that the globe finds itself in today (one that the US started). Editor s Note: The dollar had its worst day in 6 years, dropping over 2% on Thursday. The move is likely a knee jerk reaction and was a main contributor to commodity strength to end the week. The dollar responded higher on Friday. SOUTH AMERICA Informa updated their South American production estimates late this past week. They estimated Brazilian soybean production at mmt, up 0.4 mmt from their previous estimate. Their Argentine estimate offset the increase in Brazil as they forecasted production at 58.5 mmt, down 0.5 mmt from last month. The USDA currently estimates Brazilian production at mmt and Argentine production at 57.0 mmt; they will update their numbers next Wednesday, December 9 th CROP New crop soybeans have enjoyed the technical strength in recent weeks, adding 64 6 cents since lows were posted in November. Just this week, November 2016 futures were able to add 31 2 cents and settle at $9.24 0, the highest close since August 11 th. The ProEdge team was working on $8.00/$9.60 Triplexes for next fall, which give producers an opportunity at $9.60 futures in late October. If you are looking for a way to get started on next year s soybeans, this is a great way to give yourself at $9.00 cash! BASIS Soybean basis felt a little softer late in the week as producers have been rewarding the market with the recent rally. Producers looking to move soybeans into basis strength near term may have to look at the weeks surrounding Christmas and New Year s for any premiums. RECOMMENDATIONS Reward the market for its efforts by making some spot sales or placing offers. The January charts are pointing to technical resistance just above the $9.20 mark, a great spot to place an order with your ProEdge representative! Consider piecing off some bushels you have in storage, on Extended Price, or on the farm. The fundamental picture continues to look more than cozy and the USDA may add to it next week. Exports are anything but safe, so don t be surprised if we see another cut on Wednesday. If you are typically a forward seller and $9.00 cash beans are something you like for next fall, talk to your ProEdge Specialist or Consultant about our Triplex contract!

5 GRAIN ADVISER PROGRAM IS BACK CVA s Grain Adviser Program (GAP) just closed the books on year one of the program. Here s how the program did: CORN SOYBEANS $4.02 December Futures $9.56 November Futures CVA will utilize professional traders to market your bushels, giving you a futures price at the end of the pricing period. We are also happy to communicate that we will offer the GAP on OLD CROP bushels as well. So if you have some grain stored at home, consider placing a portion of those bushels on CVA s Grain Adviser Program! Call your ProEdge rep for more details! Signup ends December 15 th!

6 WEATHER EL NINO WINTER Mild weather looks to be working back into the nearby forecast, an effect of El Nino type patterns. The 6-10 day forecast is calling for above average temperatures and slightly above average precipitation. Winter weather can dictate basis values on the local level, with ideal weather allowing grain to move without issue. Poor conditions on the other hand can result in quick ship bids popping up at processor locations. 7 Day Precipitation South American weather continues to offer regular chances for rain in the forecast, though northern portions of Brazil are drier than some would like. The early dryness this past fall mostly limited the planting date of Brazilian soybeans; agronomically, yield potential still remains high, with pod fill being the most important phase. This stage will hit in late January through February Day Temperature 6-10 Day Precipitation Risk Disclosure -The risk of loss in trading commodities can be substantial and past performance is not necessarily indicative of future results. Therefore, you should carefully consider whether such trading is suitable for you or your organization in light of your financial condition. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. Neither the information, nor any opinion expressed shall be construed as an offer to buy or sell any futures or options on futures contracts.