Chicago Board of Trade Market News
Outlook: July corn has broken its mild uptrend with Thursday’s 6-cent drop. This week’s trading erased all the early June weather market gains but there are still bullish factors increasing upside potential. Domestic and international corn demand remains solid and the weather forecast isn’t set in stone.
Weak crude oil prices pressured ethanol futures and contributed to decreasing ethanol output. Ethanol production fell to 990,000 barrels per day this week, down 12,000 barrels per day from the prior week. Ethanol stocks fell to 22.28 million barrels as summer driving and gasoline demand remains robust. Wednesday’s EIA report also noted a bigger-than-expected draw in crude oil inventories, which will support oil and ethanol prices. The energy outlook – particularly ethanol and crude oil stocks/inventories – is bullish for corn. Some private firms are forecasting corn used for ethanol in the 2016/17 crop year to hit 5.560 billion bushels, above USDA’s current projection of 5.45 billion bushels.
Brazil’s corn harvest is 5 percent complete, which is behind last year’s pace but not worryingly so. The delayed harvest and slow farmer selling has kept FOB prices in a very competitive range versus the U.S. Gulf. Currently, U.S. Gulf FOB prices are $0.04/bushel over those for FOB Paranagua corn, a small enough difference to keep U.S. corn competitive on the export market.
The USDA said 48 million bushels of corn were inspected for export last week, a bullish amount that keeps U.S. exports 44 percent higher than this time last year. With 11 weeks left in the corn marketing year, YTD exports are well above USDA’s projected demand increase of 17 percent. This has many analysts expecting USDA to reduce U.S. ending stocks in upcoming WASDEs. If corn exports remain robust for the remainder of the marketing year, USDA could reduce U.S. ending stocks by 200-300 million bushels.
Last Friday, the CFTC reported managed money funds had their second-largest short covering effort in corn market history. Funds bought back over 123,000 futures contracts of their short position to end the week with a nearly flat position. Since then, corn futures open interest has increased, suggesting funds are again selling the market in the face of better Corn Belt weather.
From a technical perspective, July corn broke the trendline that was slowly helping prices higher. Chartists will look to $3.60 ¾ (the April 21 low) as a key point for the contract: continued closes above this point will keep corn in its $3.60-3.75 trading range while closes below will prompt more bearish outlooks. The market’s two-month sideways trend has left moving averages as less-than-useful indicators and momentum indicators will likely be more reliable in the near-term. The RSI is neutral but the MACD and stochastic oscillators are showing more bearish swings.
Given good corn demand both domestically and internationally, combined with likely reductions in USDA’s ending stock figures, it seems corn still has bullish possibilities. Near-term good weather will dampen enthusiasm for building new long positions, however, and a period of depressed prices and volatility will likely ensue. However, given spreading dryness in the Midwest and solid demand, it seems an ill-advised place to turn bearish.