Chicago Board of Trade Market News
Outlook: The fight between surprisingly bullish factors and pending possibly hugely bearish factors continues in the corn market. On one hand, exports and ethanol production have been better than expected which is keeping bulls at the table. This, combined with a more positive macroeconomic outlook that is prompting funds to push more money into the market, is creating a surprisingly strong undertone to the corn markets in the near term. However, a massive Brazilian crop is coming which could quickly shut the door on U.S. exports and give the bears a winning edge.
The December WASDE was a non-event for the U.S. crop, though increases in Brazil and China’s crop were unexpected. Brazil’s production was increased due to larger-than-expected planted area and higher yields, especially for the “safrinha” crop, which if realized would be a record large at 86.5 MMT. Brazil’s exports were also increased by 2.5 MMT to 28 MMT which could limit U.S. export opportunities. China’s production was increased as well, based on new information from China’s National Bureau of Statistics. China’s import/export figures were left unchanged from the November report but ending stocks were increased. China’s increased corn production may serve to lower demand for U.S. ethanol in the coming year.
The upward trend in ethanol margins that has been in place since the beginning of 2016 is still intact and current levels show producers are making excellent profits. Margins have been sufficiently good as to motivate ethanol producers to exceed USDA’s projections for corn use nearly every week this marketing year (September 1-August 31), using an average of 3 million bushels above expectations. A large portion of the ethanol market’s strength has been driven by exports, however, and potential threats to export opportunities will quickly exact a toll on producers’ margins.
The boom in ethanol production during the last half of 2016 is adding significant support to the corn market which should continue into next year. Farmers, adhering to the old adage “buy low, sell high”, have been holding tightly to their crop which has caused ethanol producers to put a bid under the cash market. Cash prices, and the March future basis, have both been climbing as ethanol plants have plenty of room to bid higher for corn right now.
Looking forward, corn still seems relegated to range-bound trading but the presence of buying strength is noted. Traditionally, the March futures contract is less volatile during the winter months and, given the dynamics currently in place, it is likely to hold to this pattern for now. The technicals are again showing some bullish indicators with upward sloping moving averages and today’s close that remained above the key $3.56 level. However, it will take a strong close above $3.64 to create any serious bullish momentum and the next resistance would be found only 5 cents higher at $3.69. Should the bears win in the next few days, the next support point will be at $3.50 ¼ followed by $3.41 ¾.