Chicago Board of Trade Market News
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Outlook: In a holiday-shortened week of trading, March corn once again bumped up against the upper end of its recent trading range. The rally was specifically fueled by poor South American weather which will likely trim corn production from the region, though soybean production is more at risk currently. The weather in Argentina looks very hot and dry in the near-term with hints of changes coming toward the end of the month as the high-pressure ridge weakens. Brazil’s weather is rainy but normal for January and will likely only marginally slow the harvest.
USDA’s weekly Export Sales report was delayed this week due to the holiday and will be released Friday. The USDA did report 110,400 MT of corn sold to unknown destinations for the 2016/17 MY. Combined with earlier reported sales of 102,944 MT (also sold to unknown destinations), the figures point to a modest gain in weekly export sales in tomorrow’s report. Exports have been trailing off since early November but the 30-cent discount the U.S. Gulf holds to Brazil should be supportive for the next few weeks. So far, U.S. corn exports are up 72 percent for the current marketing year. However, the U.S. dollar is presenting some headwinds due to recent Federal Reserve statements that additional rate increases are appropriate due to tightening labor markets.
One bearish consideration for corn is the apparent deterioration in ethanol margins. A third week of record ethanol production is building stocks rapidly and pressuring Midwest ethanol prices. Margins, which were exceptionally good, are now to the point where negative returns to production are likely. A pullback in production will likely weaken interior corn basis levels and put bearish pressure on the markets.
From a technical perspective, March corn has substantial bullish pressure building but is still restrained by resistance at $3.69. The contract is near three-month highs and fresh news will be required to get bulls buying above this level. There is still a lot of corn in the world but some unexpected, bullish factors are creeping up on the market (notably, South America’s weather). Funds are reportedly adding to their length in corn, even as commercial selling remains active at these prices, but not so much as to generate a breakout. It will take significant fundamental news and a sustained breakout above $3.69 to generate a new buying wave. On the other hand, the weakening high-pressure ridge across Argentina could ease weather concerns and allow prices to fall back into their trading range. Should that occur, support lies at $3.52 and $3.45. The market feels like it wants to go higher but is unwilling to do so without sound fundamental reasons.