Market Perspectives – July 1, 2021

Chicago Board of Trade Market News

Outlook: December corn futures are 69 ¾ cents (13.41 percent) higher this week after USDA surprised the market with bullish Grain Stocks and Acreage reports. December futures ended Wednesday at their limit bid after the reports were released and surged above the $6.00 mark early Thursday. USDA’s reports served to warn the market that supplies are not as ample as previously thought, and that summer growing conditions are increasingly important.

The strong pace of the 2020/21 U.S. export program was clearly evident in the USDA’s June Grain Stocks report. Corn stocks as of 1 June 2021 were down 18 percent from the prior year at 104.45 MMT (4.112 billion bushels) and on the low end of pre-report expectations. On-farm corn stocks were down 39 percent from the prior year, reflecting farmers’ strong sales pace early in the marketing year. The share of corn stocks in on-farm storage fell to at least a six-year low of 42 percent, down sharply from 57 percent in June 2020. Sorghum stocks were also well below last year’s levels, falling 44 percent to 1.036 MMT (40.8 million bushels). On-farm sorghum stocks were just one-quarter of last year’s volume.

The market’s biggest surprise this week came from USDA’s 2021 planted area estimates. The agency pegged 2021 corn seedings at 37.514 million hectares (92.7 million acres), which was 0.441 million hectares (1.09 million acres) below the average pre-report estimate. The number had an even greater surprise factor as pre-report expectations were unusually wide-ranging with at least one firm predicting 39.174 million hectares (96.8 million acres) of planted area. USDA’s smaller-than-expected acreage estimate suggests the summer weather will be even more important for ensuring adequate 2021/22 supplies.

Notably, the June acreage report showed Minnesota, South Dakota, and North Dakota added the greatest number of corn acres from the March Prospective Plantings estimates. Those three states, especially the Dakotas, are currently struggling with the worst drought since at least 2013. That means 1.2 million acres that were added between the March and June reports are now in danger of significant yield losses.

Other notable statistics from USDA’s acreage report include a 21-percent reduction in oats planted area (estimated at 0.952 million hectares of 2.352 million acres) and a 1 percent decrease in barley planted area (1.053 million hectares or 2.603 million acres. Sorghum area expanded 10 percent from 2020 to 2.626 million hectares (6.49 million acres).

From a technical standpoint, December corn futures bounced higher from trendline support at $5.14-5.17 early this week and entered the upper end of their trading range following Wednesday’s reports. Thursday price action saw the market surge above $6.00, breaking technical resistance there, before succumbing to profit taking later in the day and settling below that point. Thursday’s high ($6.11) is now a resistance level (with trendline resistance at $6.21 ¾ above that) while support lies at $5.75. Funds were liquidating positions before the report, and it remains to be seen whether they are re-entering the long side of the market. Unless the U.S. weather forecast shifts unfavorably for the Corn Belt, December futures are likely to trade a choppy, sideways range while waiting to observe the weather during pollination and early yield indications.