Chicago Board of Trade Market News
Outlook: Active trading pushed the March corn contract 11 cents higher this week as continued export strength and ethanol demand keep the market afloat. Last week’s break at the CBOT did indeed stimulate additional export buying and three days of a lower U.S. dollar supported the effort. Excellent ethanol exports are turning margins across the Midwest higher still, and margins in some areas are nearly $1/bushel higher than this time last year. The ethanol industry is certainly supporting cash corn prices and doing its part to work through the massive 2016 U.S. corn crop.
The latest USDA export data is bullish for corn, exceeding what was needed to reach USDA’s demand projections. Weekly export sales for the 2016/17 crop totaled 63.2 million bushels while shipments totaled 53.8 million. Shipments were 10 million bushels above what was needed this week. Year to date exports are 80 percent higher than at this point in the 2015/16 crop year, indicative of just now aggressive U.S. exporters have been and how competitive U.S. prices are.
The cheapest FOB corn available still comes from the U.S. Gulf, though Argentina and Brazil are gaining competitiveness. The spread between U.S. Gulf corn and Argentina (upriver) and Brazilian quotes narrowed this week to roughly -$17/ton, down form -$20/ton last week. In the coming months, U.S. corn will undergo its seasonal loss of competitiveness, especially as the Brazilian crop comes to market. However, the large discount present in the market today provides exporters with plenty of opportunities to move U.S. product to the world. In the near term, international demand is the most variable factor for U.S. exporters with supply competition becoming more relevant in the spring. Fortunately, demand is typically the more slowly moving portion of the export equation and U.S. exports should remain robust in the short run.
Both managed money funds and commercial firms are now net short the corn market, and both added to their bearish bets last week per the CFTC. However, fund short covering has been prevalent this week (indicated by a contraction in March CBOT open interest) and the CFTC data to be released Friday will likely show that funds are becoming more neutral rather than purely bearish.
The March CBOT contract has settled into a decidedly cyclical trading pattern, relegated to a 20-cent trading range. The Relative Strength Index (RSI) and stochastic indicators are neutral while the 10, 20, and 40-day moving averages are consolidating. No trend is underway, nor does one appear to be emerging, and trading will likely continue as selling rallies and buying breaks.