Chicago Board of Trade Market News
Outlook: The May corn contract remains stuck in a choppy, sideways trading pattern. The Easter holiday dampened trading late last week, though a general lack of news didn’t help either. Trading has essentially been conducted on weather forecasts for Brazil and the U.S., with Brazil’s weather bringing bearish sentiment and American weather bullish.
The Midwest is wet right now which is causing concerns about delayed planting. As of April 16, 6 percent of the U.S. corn crop was planted, half of last year’s pace and behind the 5-year average pace of 9 percent. Still, it’s a little early to be overly concerned about these figures, though greater delays may signal a switch from corn to soybeans.
Looking toward the summer weather forecast for the U.S., NOAA is calling for a hotter and drier than normal summer for much of the Corn Belt. Currently, the Southeast U.S. is dry and whether this dryness will expand to the Delta or Corn Belt will be closely watched. Given corn’s preference for cooler growing seasons, a hotter summer or dryness in the Midwest could raise some concern about reaching trendline yields. Should the weather begin to show signs of heat and/or dryness, expect the market to quickly price in some weather risk premium.
In Brazil, however, the weather has been hugely favorable to the corn crop which seems to grow bigger each day. The recent weather has been especially critical for the safrinha corn crop which is estimated at 61.6 MMT, 67 percent of Brazil’s total corn production. Current weather forecasts call for light rains across much of the core second-crop corn area (most of which is located in Mato Grosso) which will boost crop conditions – and yields. Though the market has not paid much attention to this fact, Brazilian farmers have only sold 49 percent of their soybean crop. If selling does not increase in the coming weeks, there is a strong probability much of the safrinha crop could be left sitting on the ground – or standing in the field. Such an event might actually work to reduce the size of Brazil’s crop, or at least the volume of high quality corn.
The latest export data from the USDA were bullish corn. Net sales of old-crop corn were 29.8 million bushels, above the 3.6 needed in this week’s report to keep on pace with USDA’s projections. Similarly, weekly exports of 55.4 million bushels exceeded the 43.7 that were needed to meet USDA’s export forecast of 2.225 million bushels. YTD exports are up 55 percent from last year while YTD bookings (exports plus unshipped sales) are up 43 percent.
From a technical standpoint, May corn is in a sideways range between $3.55 and $3.75. No one wants to buy or sell the breaks as many feel the market has been too bearish for too long, but everyone is selling rallies. Fund managers are leaning bearish on corn, though not overly so. Under these conditions, sideways trading will persist until new fundamental news knocks the market out of its range. Oscillating technical indicators (stochastics, MACD, and RSI) may perform well under these conditions.