Market Perspectives April 4, 2014

Chicago Board of Trade Market News

Outlook: USDA published important data on Monday with the release of the Grain Stocks and Prospective Plantings reports. Both of these reports were considered supportive to corn prices. The quarterly corn stocks were estimated to be 7.006 billion bushels on March 1, which was below the average pre-report estimate of 7.11 billion bushels. The intended corn plantings of 91.7 million acres was below the average pre-report estimate of 92.9 million acres.

The quarterly corn stocks estimate was particularly important because it indicated that there is no reason to reduce USDA’s feed use estimate. There are now two quarterly stocks reports in a row which indicate that domestic usage is strong. This fact strengthens the argument that corn futures contracts did not trade too high. The result is that the nearby May corn contract gained 10 cents on Monday and extended another 5 cents on Tuesday to close just above $5.07 per bushel. However, traders seemed hesitant to drive the nearby May contract above $5.10 per bushel without additional justification from fundamental factors.

Market attention will actively monitor weather in order to calculate an adequate risk premium in prices. A sudden transition to ideal weather could result in an additional 1 to 2 million acres of corn being planted. Alternatively, unfavorable conditions could have the opposite result. USDA data showed that year-over-year corn acreage reductions were not significant in the region from Minnesota, Iowa, Illinois, Indiana and over to Ohio. As a result, market participants will pay close attention to see if this corn producing region starts to receive excessive moisture; which could then cause the risk premium to increase within futures prices.

Strong export sales of U.S. corn is another factor that will be actively monitored. The present rate of sales is strong in comparison to USDA’s current total annual export estimate of 1.625 billion bushels. Because the current sales pace is basically at this level, the probabilities are good that USDA will increase the estimate for U.S. corn exports in the April 9 WASDE. However, they may not increase it as much as they could because the shipment pace has been lagging behind the sales pace, which means that there could be some cancellations of sales later in the season if the prospects are high of safely producing a large corn crop. Of course, there will be no such level of certainty until after corn pollination occurs. As well, if the prospects of producing an abundant corn crop diminish then existing export sales will be shipped out the door quickly, which encourages more aggressive buying. As an aside, China is presently not an active participant in the U.S. corn market.