Chicago Board of Trade Market News

Outlook: Corn prices remain on the defensive after a neutral December WASDE report. No major changes were made to the U.S. corn balance sheet in this week’s report and, except for dry weather in Argentina, all other fundamentals remain bearish. Some technical indicators and recent fund activity may give way to a mild rally, but the long-term trend for corn is still down. 

The December WASDE featured one demand-side change to the U.S. balance sheet: 50 million bushels of additional corn for ethanol use. This carried through and reduced U.S. ending stocks by an equal amount, leaving the 2017/18 U.S. carry out figure at 2.437 billion bushels. This equates to a 16.8 percent ending stock/use ratio, the second largest in the past 10 years, which will keep futures on the defensive. The extra 50 million bushels of corn for ethanol came at the expense of sorghum used for the same product, and USDA lowered its forecast of sorghum use in this industry. The USDA consequently increased its forecast of U.S. sorghum exports by 50 million bushels. 

Elsewhere around the world, the USDA increased Brazil’s beginning stocks and ending stocks by 11.81 million bushels, boosting that country’s ending stocks/use ratio to 9.8 percent. China’s 2017/18 ending stocks were increased as well, due to higher production estimates. On balance, the December WASDE was neutral the world corn markets and did not contain any trend-changing information. 

Reuters today announced that Argentine corn planting is on its slowest pace ever (data back to 1995). According to Argentina’s Ministry of Agriculture, 62 percent of the country’s corn crop is sown to date, behind last year’s 70 percent pace and the 5-year average of 75 percent. The slow plating is the result of La Nina-induced dry weather which has kept farmers out of the field. So far, the weather and consequent planting delays have not worried the global markets, but a continuation of this trend could spark a short-covering rally. 

Global competition for corn buyers is one reason U.S. corn exports remain below last year’s volumes. YTD corn exports total 345.5 million bushels, only 18 percent of USDA’s forecast (versus an average of 25 percent for this point in the marketing year), even though YTD bookings (unshipped sales + exports) total 935.6 million bushels (49 percent of USDA’s forecast versus 58 percent on average). The slow export pace is a key factor keeping corn prices in their current bearish state. 

From a technical perspective, some support late this week has come from funds unwinding long soybean/short corn spreads. This activity has pressured the soy complex and given some strength to corn. Technical indicators are neutral/bearish March corn, with the RSI at a neutral 40, and the 10, 20, and 40-day moving averages stacking up bearishly. Stochastic oscillators, however, point to over-sold conditions in the short-run, which, when combined with the recent spread activity, could produce a modest bounce. Fundamentally, nothing has changed for corn and the long-term trend is bearish, but a small rally could come from technical buying/fund activity.