Has the corn market established $5 as this season’s price floor?

By Jon Scheve, Superior Feed Ingredients, LLC

The USDA report found an additional 246 million bushels to add to the production side of the balance sheets. Plus, the export pace for last year’s crop was not met, which added another 70 million bushels to the bottom line of this upcoming marketing year supply. All of this should have been bearish news; however, the market bounced off the lowest value since April 13 minutes after the report was released.

Technicals

When the USDA provided bullish corn news in August there was an initial price jump, but ultimately the market closed nearly 20 cents off the highs that day and has worked lower ever since. After bearish news Friday the market closed 20 cents off the lows for the day. From a technical standpoint, December corn closed above the 200-day moving average which was around $5.05. Also, corn traded to the 50% retracement level of the move between last summer’s low to this May’s high before turning around and trading higher. All of this could be suggesting that there may be a price trend shift occurring. This could mean that corn is range bound between $5 to $5.50 for another month.

Logistics

Several elevators in the Gulf have begun unloading barges and loading ships with grain for export and it is expected most facilities will be running by the end of the month. While there is concern over missing 2 weeks of loading times in the Gulf, U.S. export capacity is at its highest October through December. It is likely our excess export loading capacity especially in late November, December and early January can make up for everything missed in early September.

Exports

The USDA is currently estimating 2.475 billion export bushels, which is similar to 2017 levels of 2.425 billion. This is down significantly from last year’s 2.745 billion bushels due to large Chinese demand. Some are expecting China will not export as much corn as last year, because historically China imports a lot less the year after they surprise the market with large purchases in one marketing year.

But another concern the market must eventually deal with is that due to drought, Brazil is producing almost 20% or some 800 million less corn bushels this year than was expected. With about 60% of Brazil’s production exported, a lot of that demand could come to the U.S. in late winter or early spring. So, while it would be nice if Chinese exports were like last year, it may not be needed for better prices.

Wheat

World wheat stocks continue to fall year over year, which suggests less wheat should be used for feed globally. If this occurs, more corn would likely be pushed into feed diets around the world. While world corn stocks are projected to increase half of what was lost last year, it might not be enough to push prices a lot lower, and this could even mean corn prices may need to rally to ration demand in the future. 

Bottom line

While I think there is upside price potential in corn long-term, with current prices nearly $1 per bushel higher than last year at this time, more farmers than usual without on-farm storage may sell their corn across the scale during harvest. This could put downward pressure on prices until after harvest when bin doors get locked. The focus now will be on how fast the Gulf gets back to normal loading as well as yield reports coming out of the field as the harvest progresses. While it’s still possible corn could dip below $5 this season, there are a lot of reasons to think we may have turned a corner.

Please email jon@superiorfeed.com with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.

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