Morning Grain Update

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11/18/2013 6:56 AM CST

The grain markets are mixed to lower this morning after an ugly end to last week. The December corn contract is now within just a few ticks of the multi-year lows that were traded 9 days ago. On Friday afternoon, the EPA announced a proposal that would cut the amount of renewable fuels that refiners must blend into the fuel supply next year, potentially reducing demand for corn. In the draft released on Friday, the EPA said that it would require 15.0 15.2bil gallons of renewable fuels such as corn ethanol and biodiesel in 2014; this compares with 18.15 billion gallons previously. Although the proposal is certainly a negative for the corn market in the big picture, it was expected and was not a surprise in any way. The EPA proposal implies that 12.7 - 13.2bil gallons of corn ethanol would be mandated, down from 14.4bil previously. Most analysts do not believe that ethanol demand for corn will drop any time soon, as processing margins are very good currently. Corn demand will hurt if ethanol margins decline, assuming the EPA's proposal will be pushed through. There are bound to be lawsuits, protests and other actions from the ethanol lobby during the 60 day comment period. The market has been aware of the proposal since EPA emails were leaked several weeks ago; this is not fresh news as far as the trade is concerned, but does add more fuel to the bearish fire in the corn market. Much of the trade now believes that corn production numbers will be ratcheted higher in future USDA reports, which is hard to disagree with based on market action. The USDA released a delayed Export Sales report on Friday morning. Despite the fact that USDA ratcheted their export estimates higher on the November report, sales continue to outpace USDA projections. Cumulative corn sales sit at 66% of USDA projections vs. 47% on average. Cumulative soybean sales stand at 86% of USDA projections vs. 62% on average. Cumulative wheat sales stand at 71% of USDA projections vs. 60% on average. Private group Informa released 2014 acreage estimates on Friday morning. Corn acreage in 2014 was estimated at 91.5mil acres vs. their previous estimate of 91.7mil. Soybean acreage was estimated at 83.8mil vs. Informa's previous estimate of 83.9mil. When considering 2014 futures prices and cost of production, soybeans pencil-out better than corn for most farmers in the US. NOPA Crush data was also released on Friday. October crush was pegged at 157mil/bu vs. 108.7mil in September; traders had looked for a number near 154mil/bu. The front end of the soybean market had been strong until Friday's sell-off, partially as a result of strong demand from processors who have had excellent margins recently. Friday's collapse in the soybean market caught many off guard. While strong spot soybean demand had been able to push the market back above the $13 mark for a short-time, traders are now eyeing both South American weather as well as the potential for increased production statistics here in the US. A corn market near 3-year lows doesn't help either. The CFTC released their Commitment of Traders report on Friday. During the week ending on November 12th, managed money bought 40k corn, leaving them short 139k contract. We'd imagine that much of that 40k was again sold during the last few trading days. The same group of traders bought 23k contracts of soybeans, leaving them long 121k contract. Managed money sold 28k contracts of wheat, leaving them with a short position of near 47k contracts. Corn harvest is expected near 90% complete on this afternoons Crop Progress report; soybean harvest is expected near 96% complete. It will be interesting to see if the recent lows in the corn market hold today. There is enormous open interest in December corn PUT options that expire on Friday.
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