Chicago Board of Trade Market News
Outlook: The world is waiting for Friday’s Prospective Plantings and Grains Stocks reports from USDA. May corn has dutifully been trading lower in a “risk off” strategy to what is assumed to be a set of bearish USDA reports. Analysts are expecting USDA to show 91 million corn acres planted this spring and 8.55 billion bushels of corn in bins as of March 1, 2017. If realized, the March 1 stocks figure would mean a record-large demand of 8.39 billion bushels have been used already. Ethanol production and exports have certainly been sufficiently robust as to make this a definite possibility.
Despite record demand projections, however, the world is still awash with corn. The International Grains Center recently released their forecast for the 2017/18 global corn crop and estimated 1.024 billion MT of production. The figure is actually down slightly from 2016/17’s production of 1.053 billion MT. The decrease in production stems from IGC’s outlook of lower corn prices across the globe. Indeed, with the first-crop Brazilian corn harvest under way, Brazilian export prices have fallen to within 20 cents of U.S. FOB Gulf prices, confirmation of the long-anticipated pressure on global markets.
Additional bearish considerations came from JBS’ announcement that the company will stop operations at 10 slaughter factories in Brazil for 20 days. While the resulting impact of keeping some cattle on feed longer should increase corn consumption, the more prevalent concern is that corn consumption by large industries will be lower due to the large meat stocks that have formed in Brazil.
USDA’s export sales figures were quite bullish this week. The U.S. sold 33.1 million bushels of old-crop corn, well above the 28.2 million that were needed to reach the USDA’s export projections for the year. Similarly, weekly exports of 55.2 million bushels were almost 25 percent greater than what was needed last week. YTD exports are up 62 percent and YTD bookings (exports plus unshipped sales) are up 50 percent for the year. These figures show U.S. exporters have been aggressive in marketing corn, through with the Brazilian harvest coming their abilities will be tested.
From a technical perspective, May corn is in a downtrend, though significant support lies just under current prices. Additionally, the contract is oversold according to stochastic indicators and the Relative Strength Index. However, trading on technical analysis is hardly advisable since tomorrow is one of the most significant report days of the year. Should a bearish report be released, May corn will likely fall below support at $3.50 and head lower, perhaps surrendering to a 100 percent retracement to the August 31 contract low ($3.33). If, on the other hand, USDA’s reports are bullish, the immediate upside target becomes $3.75, and later a test of the February 16 high of $3.87. The view, however, is for bearish news to be absorbed more quickly and bullish news will be rewarded with a slow grind higher.