Chicago Board of Trade Market News
Outlook: The corn market has been trading like a weather market this week, but the weather really hasn’t been driving the rally. At least, not directly. Poor crop conditions and expanding drought in the wheat country of the Dakotas and Montana has sent CBOT and MGEX wheat skyrocketing this week. The wheat market has pulled corn higher, though it’s questionable whether the fundamentals are truly bullish corn.
From a fundamental perspective, December corn is trading a bag of mixed news. Weather risk exists but current crop conditions are generally good. U.S. export demand has been solid so far, but Brazil’s harvest is pressuring U.S. exporters. The latest planted acreage estimates from USDA were larger than expected but harvested acres could still be substantially smaller.
USDA’s latest Crop Progress report showed 68 percent of U.S. corn in the good/excellent categories. This figure is below last year’s outstanding numbers and between the ratings of 2015 and 2013 for this point in the marketing year. The crop is heading into the key silking stage where hot and dry weather can be very damaging.
Current U.S. weather forecasts call for maximum temperatures that are slightly above average for much of the Midwest. Hotter temperatures will be more prominent in the Western Corn Belt, though the Eastern Corn Belt will receive warmer-than-normal weather mid-next week. Fortunately, precipitation models suggest good rainfall from Iowa eastward. This will be welcome relief to producers in Iowa and Illinois, as the latest drought monitor showed expanding dryness in these states.
USDA’s June 30 acreage report should have been bearish corn as the agency reported 90.9 million acres planted this year. The acreage estimate keeps the corn area larger than that of soybeans, though the area is down 3 percent from last year. USDA estimated an increase in “lost” acres, however, as harvested acres were forecast to be down 4 percent to 83.5 million. The market still anticipates risk that this figure will shrink further, given the flooding problems earlier this spring and marginal dryness early this summer. The interplay between planted/harvested acres left many analysts viewing the report as essentially neutral for the market.
U.S. corn exports have been robust this year, with export inspections rising 39 percent YTD from last year. Brazil’s slow harvest has certainly helped this figure, but with Brazilian farmers more aggressively collecting the crop and marketing it Brazilian FOB prices have started to fall. The Brazilian market should continue to pressure U.S. export prices, which, in turn, will limit futures gains.
From a technical perspective, December corn is trying to break it’s trading range ceiling at the June 8 high of $4.09. The nearest support exists at $3.94 and then again at $3.75, the bottom of the trading range. Profit-taking in the wheat market has pressured prices there, consequently ending spillover support in corn. Funds are likely taking neutral positions in corn and have been active buyers this week. Continued market closes above $3.94 will keep open the possibility of higher, weather-driven prices, while a close below would signal the probable end of the weather market. So far, basis has remained stable and weaker basis levels will signal the rally’s end.