Can corn futures regain $5.00 a bushel?
“No two years are alike, but the last time spot corn closed above $4.50 a bushel and headed higher, in February of 2014, futures hit $5.19 ½ a bushel, the May 2014 high,” said Mike Mawdsley at First Choice Commodities.
He added that this time he was “not sure if corn has that much mojo in it, with world supplies of corn and wheat abundant”.
However, he flagged $4.92 a bushel as a staging point, a Fibonacci retracement point from the May 2014 top.
Chicago July corn futures headed in that direction in early trading, although still have quite a way to go to get near $5, standing at $4.62 ¾ a bushel as of 09:50 UK time (03:50 Chicago time), a gain of 2.2% on the day.
“Too wet still the concern,” Mr Mawdsley said.
Maxar said that in the Midwest, “extensive rains this week will stall any remaining planting and will maintain wetness concerns in many areas”.
Besides curtailing hopes of some last-minute catch-up on corn sowings, for which ideal plantings window is closed, the extent of wetness is raising some worries too over what is in the ground.
“The market is finding new ‘horror stories’ about US corn crops as it scours the US Midwest for information,” said Tobin Gorey at Commonwealth Bank of Australia.
“Thus, while not as crop bearish as the US Department of Agriculture was last week, the market is now moving to crop estimates that are more bearish than the USDA.”
‘Never seen so much corn unplanted’
Investors, for instance, now expect 6.7m acres of the 92.8m acres that US farmers intended to sow with corn to be put down to “prevent plant”, up from a forecast last month of 6.0m acres, according to a Bloomberg survey.
Mr Mawdsley said that “we keep hearing reports across the Corn Belt from producers that have never seen so much corn unplanted or very small plants for this time of year”.
He also noted talk of “one ethanol plant in Indiana closing due to lack of corn”, with producers responding in part to the poor prospects for the 2019 crop by withholding sales of old crop supplies, prompting a strong US spot cash market, and outperformance of July futures over later contracts.
This trend extended on Monday, with the new crop December lot adding a more modest 1.9% to $4.72 ¼ a bushel.
All this said, Karl Setzer at AgriVisor noted that “concerns are starting to be voiced over what the impact of higher commodity values will be on the ag economy.
“Global importers have more choices than the US for coverage, with several at lower values. If the US market continues to rally we will likely see demand shift to those sources.”
In the US itself, meanwhile, there are “concerns… especially ethanol where margins are mostly negative already”, Mr Setzer said, tying in with the talk of an Indiana plant closure.
It will be some comfort to bulls that concerns remain about Black Sea corn output, with Maxar saying that “rains in Central Region, Ukraine, and Volga Valley this week will be too light to ease dryness and stress on corn”.
That said, just to get ahead of the game, the end of the rally, when it does arrive, will likely not come with an identification tag, and a lot more will be heard of the Chicago adage for prices in such circumstances, “stairs up, elevator down”.
Soybean futures put in a strong start too, adding 1.8% to $9.12 ½ a bushel for July, with the continued wetness after all a direct threat to plantings of the oilseed, for which the Corn Belt sowings window is still open.
“Estimates for Monday’s [USDA] crop progress report are 85% planted versus the five-year average of 93%,” CHS Hedging said.
Mitigating against a runaway in soybean futures is the huge level of stocks the US will be left with at the close of this season, seen enough to prevent a squeeze even with a reduced 2019-20 crop too.
However, on the upside is the net short which hedge funds retain in the oilseed (unlike in corn), and which they may be uneasy with amid a more positive period for ag prices.
(The Bcom ag subindex stood up 1.3%, earlier setting a four-month high.)
From a positive perspective technically, Monday’s gains took the lot back above its 200-day moving average.
And this after a week when, on the weekly chart, the spot contract traded an “outside week higher”, ie trading beyond the range of the previous period but ending up, deemed a positive signal.
‘High yields expected’
Wheat futures, meanwhile, gained 1.6% to $5.47 ¼ a bushel for Chicago soft red winter wheat for July, although Kansas City hard red winter wheat for July fared better, adding 1.9% to $4.85 ½ a bushel.
In fact, the results of the early harvest are not as bad as many expected, concurring more with the elevated crop condition ratings from the USDA.
Sure, US Wheat Associates said that “high humidity and isolated showers have delayed harvest in central and northern Texas and throughout Oklahoma.
However, it added that “despite excessive rains this growing season, no sprout damage has yet been reported”.
In top growing state Kansas while “there are continued concerns about drowned fields in central Kansas and localised fusarium (head scab) in southeast Kansas… In contrast, the western Kansas crop looks excellent with high yields expected”.
‘Corn pulling the wagon’
“New crop early yields in Arkansas [soft red winter wheat], Texas and Oklahoma [hard red winter wheat] appear better than expected,” said Benson Quinn Commodities, adding that this “should provide resistance” to upward movement in prices.
However, the Chicago and Kansas City “advance continues as charts look like buys - fundamentals may not justify the price action but corn is pulling the wagon at the moment”.
In fact, the premium of Kansas City hard red winter wheat to Chicago corn stood at just some $0.23 a bushel, July basis – down from a high of $2.25 a bushel in August last year, and $0.46 even at the start of this month.
This looks likely to drive notable demand wheat’s way, from those users, such as some ethanol or livestock feeders, able to switch grains.
In New York, cotton futures for December gained too, adding 0.8% to 66.24 cents a pound, also pulled higher by fellow row crops, although finding continued resistance in some bearish forces.
“Regarding production, while the US crop is late, it still holds strong production potential, which is not bullish for prices,” said Louis Rose at Rose Commodity Group.
“Bulls will now have to rely on US export data, the USDA June acreage report and the G-20 summit for bullish sentiment.”