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Outlook: As was predicted in these pages last week, the March corn contract hit resistance at the upper end of its trading range and turned lower this week. Fundamental news was light until Thursday’s WASDE and Grain Stocks report though weekly export sales were natural to bullish for corn. The USDA’s Grain Stocks publication indicated Dec. 1 stocks were 12.384 billion bushels – implying a record high disappearance of 4.56 billion in the marketing year’s first quarter. The WASDE report was bullish for corn, though soybeans and wheat were larger beneficiaries of the report’s forecasts.
Despite significantly bullish projections for soybeans and wheat, the January WASDE offered little to substantially interest the corn market. The USDA trimmed 2016/17 production estimates by 78 million bushels (1 percent) to 15.148 billion bushels and slightly increased imports, bringing total supplies to 16.94 billion bushels. The production reduction was motivated by lower harvested acres and a modest yield reduction. Feed and residual corn use was lowered by 50 million bushels as higher ethanol and FSI use will account for more “residual” use and as sorghum comprised a larger-than-expected share of livestock rations this fall. USDA left its export estimate unchanged at 2.225 billion bushels and took 48 million bushels away from 2016/17 ending stocks. The midpoint of USDA’s projected farm-gate price range was increased $0.05 to $3.40 which still represents a 6 percent decrease from 2015/16 prices.
The USDA did not make significant changes to the world corn balance sheet, leaving major exporters’ production unchanged. Global production was lowered 1.8 MMT and world ending stocks decreased by nearly an identical amount. For now, the world is waiting to see how the South American crop develops. Recent weather issues in Argentina and Brazil (alternating from hot and dry to excessively rainy) have resulted in wide-ranging production forecasts. Additional time will bring greater clarity but the global supply outlook is still ample.
From a technical perspective, March corn is still range bound but showing some interesting chart patterns. The strong bearish intraday moves made on Wednesday and Thursday that respectively resulted in almost unchanged and higher closes show significant bullish interest. Both intraday lows stalled out near the 100-day moving average at $3.51 and commercial buying was active. The failure of the march contract to push below $3.51 and the large trading volume of the past two days leaves open a test of the upper trading range at $3.64. While fundamentals are not yet pointing to a bullish scenario, the buying strength of Wednesday and Thursday is likely indicative of a more positive outlook for corn. The current view is that more upside potential exists for the corn market.