Chicago Board of Trade Market News
Outlook: What goes up must come down – and then go back up? Corn futures were rising fast before last week’s bearish WASDE sent the market into selloff-mode for two days. After chasing out nearly all the corn bulls, drier weather forecasts sent the market higher again this week. Last Thursday, December corn futures were down 19 cents for the week. Today, prices are 20 cents higher than last week. The volatility is almost entirely due to the weather and different models’ divergent forecasts.
The two primary weather models used by traders, the EU and NOAA’s GFS models, have shown different results for much of the past week. In general, the GFS model has trended cooler and wetter while the EU has shown more limited rainfall and hotter temperatures. The EU model has been slightly more accurate so far this year, though both have proven extremely useful. The corn market’s direction has largely depended on which model was updated the most recently. The market tends to rise when the EU shows hotter and drier predictions and tends to fall when the GFS model is less bullish. Because the GFS model has been slightly less reliable this year, traders are beginning to focus on EU model runs. These are showing more hot and dry weather, which matches what crop scouts are seeing in IA, IL, and IN – that the crops need rain!
USDA’s current yield projection for the U.S. corn crop is 170.7 bushels per acre. Nearly all analysts view this figure as too optimistic given the hotter- and drier-than-normal weather observed so far. Crop genetics have vastly improved over the decades but corn still needs water and cooler night temperature to do well. Current yield projections are near 165 bushels per acre, which – leaving all other factors in the U.S. supply and demand sheet alone – would reduce ending stocks to 1.848 billion bushels, 478 million less than USDA’s current figure.
USDA’s latest Export Sales report was bullish corn. The report showed 18.4 million bushels sold from old crop supplies and 8.3 million from the yet-to-be-harvested new crop. Old crop sales were above the 3.8 million needed in this week’s report. Similarly, weekly shipments of 41 million bushels were above the 39.7 million needed to reach USDA’s 2.225-billion-bushel export projection. YTD corn export bookings are only 11 million bushels shy of USDA’s export projection with over a month left in the marketing year. If the 17 percent YTD increase continues, the U.S. corn export program for 2016/17 could reach 2.308 billion bushels, 83 million more than USDA’s projections.
From a technical perspective, December corn has bullish upside. Momentum indicators including the MACD and stochastic oscillators are showing a short-run upward move. Moving averages are starting to pull to the upside but are not showing great predictive power right now. Support and resistance points will be key going forward. The July 11 high of $4.17 ¼ stands as major resistance for bulls but, if broken, would usher in a try of the June 8, 2016 (over one year ago) high of $4.22 ¾. On the downside, support exists as $3.82, $3.80, and major support at $3.74.
Looking forward, corn futures will continue to be highly responsive to weather forecast updates. For now, forecasts look hot and dry and Chicago traders will continue to add a weather premium to the market.