Chicago Board of Trade Market News
Outlook: Being bullish the corn market is getting increasingly difficult these days and the pricing outlook continues to dip lower. South American crop prospects are weighing against the market even as U.S. exports remain brisk. However, there is increasing risk that the USDA could increase ending stocks in its January WASDE while funds are turning bearish and adding to short grain positions.
Almost everyone in the corn business has become an expert on Argentinian weather this month as it has been one of the few notable news stories. The area south of Buenos Aires received significant attention due to very dry conditions and drought earlier this month. Earlier this week, however, the area received some rain and is expected to receive additional precipitation in the coming week. Such rains should put the crop back to normal condition and usher in concerns of global oversupply if Brazil and Argentina’s forecasted production is achieved. In the last WASDE, USDA pegged Brazil’s production at 83.5 MMT and Argentina’s at 36.5. Since then, private forecasters have increased their expectations for Brazil’s crop and the production risk is decidedly to the upside right now. While South American weather will continue to be monitored ad nauseam, it is becoming a non-issue that is leaving a bearish trend in its place.
U.S. corn exports were sufficient to exceed USDA’s projections this week. Gross sales totaled 56.3 million bushels for the current marketing year and YTD exports reached 579 million bushels, up 73 percent from one year ago. Additional evidence of the strong export demand is the 76 percent increase in YTD bookings. The U.S. export program is starting to run into headwinds, however, given the increasing U.S. dollar and the narrowing time window before South American exports start. In the near term, look for exports to remain strong while late-winter/early-spring exports could be diminished.
USDA’s current ending stocks/use ratio forecast of 16.4 percent may not stand the test of time and upward revisions are possible. USDA typically relies heavily on the December 1 crop stocks report to guide its January estimate of U.S. ending stocks and, given the large U.S. crop and slow farmer selling, it is likely these stocks will be big. Some private forecasters have the ending stocks/use ratio above 17 percent which would be the largest in over 10 years. Such a figure would clearly be bearish for corn and could send prices down to $3.25 or even lower.
From a technical perspective, March corn is at a pivotal point. With today’s holiday-reduced trading volume, prices are hovering immediately above the trendline formed from the September 1 contract low at $3.25 ½ and the intraday low on December 1 at $3.41 ¾. Should prices manage to stay above the line, it would maintain some bullish outlook for the market. However, a close below the line and any subsequent lower closes would usher in substantial bearish sentiment. The Relative Strength Index is neutral, as are the stochastic oscillators, which would imply more range bound trading. Funds have been active sellers this week and are building their short positions. However, today marks the third consecutive day of fund selling which, once completed, may leave the door open for more bullish action. While pre-Christmas trading will provide much needed directional information, it will take a decisive close during normal, post-holiday volume to fully clarify the market’s direction.