Chicago Board of Trade Market News
Outlook: The corn market’s reaction to the April USDA WASDE report was “we knew that.” The USDA failed to make any substantive changes to the U.S. corn balance sheet, keeping the key ending stocks figure unchanged at 2.32 billion bushels. Feed and residual use was decreased by 50 million bushels, equally offsetting a 50 million bushel increase in corn used for ethanol production. The USDA gave the market little to trade on until it releases its initial forecast of the 2017/18 balance sheet in May.
As uninteresting as the U.S. balance sheet was, however, more exciting changes were noted in South American balance sheets. The USDA increased Brazil’s production by 2 MMT to 93.5 MMT and increased the country’s exports by 1 MMT to 32 MMT. The global supply situation is weighing on Brazil too, as the USDA increased the nation’s ending stocks to 8.5 MMT (9.3 percent ending stocks/use ratio).
Similarly, Argentine corn production was increased by 1 MMT to 38.5 MMT and exports were increased by the same amount. Argentina’s corn export forecast now stands at 26 MMT, a 20 percent increase from the prior year. Rains in the country may cause challenges exporting this crop, however. If rains continue much longer, farmers will switch from harvesting corn to soybeans, which may delay exports and put upward pressure on local prices. However, Argentina will still be forced to remain competitive versus Brazil on the global market and upward price potential is limited.
From a technical standpoint, May corn is starting a short-term uptrend in the middle of a longer, very shallow uptrend. The contract recently found support at $3.54 and $3.57 and is now above it’s 10, 20, 40, and 100-day moving averages. Commercial value-buying has been noted recently and basis levels have started to show signs of strength. Minor resistance lies at $3.72 and more substantial resistance at $3.88.
With only 90 million acres expected to go into corn production this year and given the weather problems in South America, few market participants are likely to be significantly bearish. Tomorrow’s CFTC data is likely to show fund’s net position as nearly flat, though a bullish lean is possible. The corn market has found both technical and fundamental support and upward price pressure is anticipated. However, this trend will be working against huge global supplies and gains will be slow and hard-won.