Last week CME corn futures closed higher as a bullish December WASDE report that showed continued strong domestic and export demand for US corn which continued to provide the bulls with more fundamental ammunition. The March’25 contract closed +$2.50/bu from last week while the July’25 contract led the curve higher and finished +$5.50/bu WoW. New crop MY 25/26 contracts followed the MY 24/25 contracts higher but we think that the old crop demand related fundamentals will continue to deliver price support to the MY 24/25 contracts versus the MY 25/26 portion of the curve. Looking at the November’25/December’25 corn/soy futures spread, we see corn “buying acres” over soybeans which can generate supply concerns and limit the appreciation of old crop corn versus new crop.

 The December WASDE report delivered a bullish fundamental surprise to the corn balance sheet and futures market as the USDA increased demand at a larger level than the analysts were forecasting in Bloomberg’s prereport estimate. The demand driven use pushed ending stocks lower by 200 mbu to what we feel is a manageable 1.738 bbu. The average Bloomberg ending stocks estimate was 1.902 bbu. We estimated a 1.885 bbu ending stocks figure and believed that the government would add 25 mbu of export and corn for ethanol demand. The government acknowledged the record setting ethanol production pace this fall and increased the grind by 50 mbu. The government also noted the strong export sales pace and raised total export use by an aggressive 150 mbu to 2.475 bbu. If realized US would be the third largest since 2010 which is impressive. What is impressive about the 2.475 bbu export estimate is that US export sales this fall have been robust despite the strength of the US dollar compared to primary corn and feed grain exporters like Argentina, Brazil, Canada, and the EU. We see the demand for US corn being driven by three primary variables. 1. continued unreliable and inconsistent exportable supplies from Ukraine. 2. Select countries, like Mexico, aggressively buying US corn ahead of an anticipated second Trump presidency. 3. An expected 5% decline in Brazilian corn production and exports as the country continues to rotate toward soybean production

 The USDA forecast 1.738 ending stocks number, -22 mbu YoY, is back in normalized 10 year range. Headed into the final weeks of December and 2024, we see room for cautious optimism for corn demand and ending stocks in 2025. From the bull side we’re looking to the January WASDE report when NASS presents the final yield number for the MY 24/25 marketing year. Over the last 15 years the government has a history of lowering the corn yield in the January report and we feel that the lingering dryness across much of the key producing states in the WCB will factor into the government’s figure. We see a scenario where corn yield can decline by 1.0-1.50 bpa. If this scenario is realized we would see the ending stocks number fall below 1.738 bbu and into the mid-1.6 bbu range. This would be supportive futures prices but would also provide an economic incentive to increase planted corn acres for MY 25/26. From the bear side, a looming trade war and trade tariffs with many countries can result in export cancellations and pressure prices

Discover how HTS Commodities can assist with your risk management requirements.

Get the latest insights delivered right to your inbox by clicking here

Contact Scott Strand

Direct 612-486-4624 | scott.strand@hilltopsecurities.com

Text 612-699-8869

Trading on regulated commodity exchanges inherently involves risk of loss and is not suitable for everyone. The leverage created by trading on margin can work against you just as much as it can benefit you, and losses could exceed the entire investment as well as additional cash deposits. You may be required to immediately provide capital upon notice to maintain any or all open positions, and failure to do so in a timely manner could result in penalties, liquidating debit balances, unforeseen financial obligation and the loss of opportunity sought by participating in the commodity futures and options marketplace. Only risk capital should be considered for alternative investment or speculation. Before opening an account you should seek advice from related associations, regulators, certified public accountants, industry professionals and other trusted advisors. Be certain that you understand the risks and can withstand the potential losses associated with SWAPS, futures, options on futures or any other derivatives or cash commodity transactions in which you intend to participate. HTSCommodities may not represent, guarantee or warrant that you will profit from any trading activity nor that realized losses will be limited whatsoever.

The paper/commentary was prepared by HTSCommodities for informational purposes only. This paper represents historical information only and is not an indication of future performance. Nor is it a recommendation or solicitation or any specific product. This material has not been prepared in accordance with the guidelines or requirements to promote investment research, it is not a research report and is not intended as such. SOURCES: Bloomberg, U.S. Department of Agriculture, U.S. Energy Information Administration, Commodity Futures Trading Commission, National Oceanic and Atmospheric Administration. Sources available upon request.

Principals, managers and some associates are registered with the National Futures Association (NFA) and all members participate as part of an independent Introducing broker in good standing. Members  operate under the governance and guidelines of the Commodity Futures Trading Commission (CFTC) and are authorized to represent multiple futures clearing merchants or FCMs for the benefit of clients’ selection and or suitability.

Hilltop Securities Inc. is a registered broker-dealer, registered investment adviser and municipal advisor firm that does not provide tax or legal advice. HTS is a wholly owned subsidiary of Hilltop Holdings, Inc. (NYSE: HTH) located at 717 N. Harwood St., Suite 3400, Dallas, Texas 75201, (214) 859-1800, 833-4HILLTOP.

© 2024 Hilltop Securities Inc. | All rights reserved | MEMBER: NYSE/FINRA/SIPC/NFA