Commodities: Fund-led rally leads to $5 cash prices

By Jason Sagebiel, FCStone | May 20, 2014

Producers had one week in early May to get 59 percent of the corn crop planted. Unfortunately, emergence may slow as cold and wet weather prevailed the second week of May. Despite bullish data figures on USDA’s May report, funds were sellers the third week in May.  July corn futures traded as high as $5.2225 on the day of the report release and by the next Friday, July corn had traded down to $4.8025.  The funds had reached a long position in mid-May with length of 277,000 contracts.  This fundamental and fund-led rally offered the producer to make corn sales often reaching $5 cash prices. 

Since December the carryout of the current crop has declined from 1.792 billion bushels to 1.146 billion bushels.  This is the justification for the rally.  Overall demand continues its increasing pace as ethanol production is projected to consume 5.050 billion bushels.  The bigger demand growth has been observed in the export arena with 1.90 billion bushels projected to exit the U.S.  This would be 14 percent of the corn demand compared to 6 percent a year ago.  Overall, feed demand is 5.30 billion bushels as compared to 4.33 billion bushels a year ago. 

The USDA released the first glance at the new crop scenario.  Yield was projected just above trend line at 165.3 bushels per acre, resulting in production being 13.935 billion bushels.  Demand was calculated with feed using 5.25 billion bushels; exports 1.70 billion bushels, ethanol 5.050 billion bushels and other industries using 1.385 billion bushels.  Overall demand is at 13.385 billion bushels versus 13.635 billion in the current marketing year.  Therefore, ending stocks are projected at 1.726 billion bushels or 580 million bushels higher than the current projection.  At face value, that should weigh on prices.  Remember, last fall the current crop started with a projected carryout of more than 1.70 billion bushels.  

July futures        
Date High Low Close  
May 16, 2014 4.87 4.80 1/4 4.83 1/2  
April 16, 2014 5.10 3/4 5.01 5.03 1/2  
May 16, 2013 6.52 6.40 1/4 6.41 1/2