Market Perspectives – May 23, 2014

Chicago Board of Trade Market News

Outlook: After selling off about 45 cents, the nearby July corn contract seems to have found support around $4.75 per bushel. Speculators’ exiting of more long positions has the potential to drive this contract down another 10 cents, but continuously lower prices seems unlikely because of the near-term influence of higher soybean prices, delayed corn planting in the northern corn belt and normal uncertainties prior to corn pollination.

 The prospect for ample moisture and warmer weather in the central United States is favorable for corn development. South American prices are also becoming increasingly competitive against U.S. corn as harvest in that region progresses. Such fundamental factors can make commercial end-users reluctant to chase prices higher. However, the actions of speculators to influence prices in the short-term should not be underestimated. Speculators presently hold long positions in soybean contracts that are making new highs. As well, wheat contracts seem to be in the process of completing their seasonal move downward prior to the winter wheat harvest. Lastly, corn contracts have sold off over the past couple of weeks according to expectations. This Outlook section discussed that prospect over the past month.

The outlook for future price action is dependent upon current market conditions, which is as follows: There is common market talk that soybean prices “must” be driven to higher levels in order to cut off demand. Such talk is the building of a consensus in hopes of taking action to drive prices higher. The influence of such talk seems to also be generating some discussion about the relatively tight old crop U.S. corn stocks. Due to that development, the prospects that USDA could further reduce old crop stocks (even if it is actually non-threatening), and the prospect that the U.S. Environmental Protection Agency (EPA) could backtrack regarding reduced ethanol production (even if it actually means no increase in ethanol production), could combine as catalysts to momentarily enable speculative traders who are still long corn contracts to initiate a pre-pollination rally that goes beyond what many experienced traders consider realistic. Of course, such developments are not certain – but successful grain traders are those who know how to plan for uncertainty.