Chicago Board of Trade Market News
Outlook: Two factors drove corn futures in opposite directions this week: the weather and the WASDE. Weather forecasts calling for hot, dry conditions across much of the Corn Belt sent traders into short-covering and weather-market-rally mode early this week. The rally was quickly broken by a fundamentally bearish July WASDE report. Going forward, these two factors will continue to dictate the market’s direction.
Traders and analysts worried about long-run weather forecasts that called for abnormally hot and dry weather across the Corn Belt a lot this past week. The forecasts indicated a heat wave would move across the region during the corn crop’s key silking stage. Unfavorable conditions during this period can quickly reduce yields, and some yield models were estimating a national yield of 157 bushels/acre. The forecasts drove December futures to touch $4.17/bushel on Tuesday before closing lower.
On Wednesday, the USDA issued a WASDE report that was expectedly bearish. U.S. 2017/18 corn ending stocks were increased by 215 million bushels to 2.325 billion. Larger old-crop supplies and larger new-crop seeding rates drove the increase in ending stocks. The WASDE included a trendline yield of 170.7 bushels/acre, as was expected by the trade. Notably, the average U.S. corn yield could fall 5 bushels/acre and leave 1.900 billion bushels in ending stocks. Some analysts are noting it will take a yield of less than 160 for the fundamentals to become truly bullish corn.
Current weather forecasts have lowered expectations for high temperatures, though the Midwest will remain dry. A high-pressure ridge over the Mountain West and Plains will keep moisture out of the Plains and Northern Plains for the coming 10 days. Any moisture will likely go to the Great Lakes as storm systems move around the high-pressure ridge. Fortunately, the forecasts are calling for cooler temperatures which is a lesser threat to silking corn. However, the dry trend must still be watched and further deterioration in drought conditions could swing futures markets bullish again.
From a technical perspective, December corn futures have turned decidedly bearish. Tuesday’s outside-day with a lower close chart formation was bearish and futures fell 30 cents over Wednesday and Thursday. The selloff blew through psychological support at $4.00 and headed lower from there. The next minor support exists at $3.8075, the June 30 daily low, and major support at $3.74, the June 23 daily low and the lowest price since November 2016. Oscillating indicators are swinging back to bearish after the weather-market rally lifted them higher. December corn is now below the 10-day, 20-day, and 50-day moving averages but those seem to have offered little guidance in this year’s sideways market.
Going forward, the fundamentals are bearish unless the weather significantly damages yield potential. Trading will be choppy and additional downside is likely limited. Should the weather generate another rally above $4.00/bushel, farmers and commercial firms may find solid marketing opportunities.