Market Perspectives – October 28, 2021

Chicago Board of Trade Market News

Outlook: December corn futures are 24 ¾ cents (4.6 percent) higher this week as the market as strengthened on firm basis levels, expanding ethanol production, and bullish technical developments. The market broke out of its sideways trading pattern on Wednesday and followed through on those gains in Thursday’s trade. Now, the market seems ready to push higher with a supportive fundamental backdrop.

Rising crude oil and other energy markets are helping ethanol prices and margins rally as well. Ethanol margins have grown sharply in the past month, spurring ethanol production. Ethanol output posted its fourth straight weekly increase, with average daily production rising to 1.106 million barrels. Production for the week ending 22 October was up 18 percent from the same week in 2020 and brought YTD production up 7 percent. The weekly corn grind has exceeded the pace needed to meet USDA’s 132.1-MMT ( 5.2-billion-bushel) use forecast each of the past three weeks.

The increase in ethanol corn consumption, combined with the recovery in U.S. Gulf corn exports, is keeping basis firm across the Midwest. Basis dipped slightly this week to -18Z (18 cents under December futures) but remains above last year’s then-five-year-high of -20Z. Rains across the central and eastern Corn Belt this week are also likely to delay the final stage of harvest, which is further supporting basis levels.

The weekly Export Sales report featured net corn sales of 0.89 MMT and exports of 0.68 MMT, both of which were down from the prior week. YTD exports total 5.145 MMT (down 16 percent) while YTD bookings (exports plus unshipped sales) total 29.8 MMT (down 3 percent). The report’s data was on the low end of pre-report expectations.

From a technical standpoint, December corn futures posted a bullish upside breakout from their recent trading range on Wednesday, rising above the $5.48 mark. The contract triggered buy-stops as it passed that level and trendline resistance at $5.52 in heavy volume trade. An early selloff on Thursday found support near the now broken trendline, which helped create higher trade heading into the close. Technical indicators are pointing to additional upside potential with the next major resistance level lying at $5.75 and long-term trendline resistance at $5.86 above that. Strong ethanol margins and run rates are offering a supportive fundamental backdrop to keep buyers engaged on breaks. Market support now lies above $5.50 and corn futures seem to have started their seasonal grind higher in a dynamic manner.