January 27, 2022
Since digesting the January 12 USDA report, March 2022 corn futures found firm support near the $5.85 price level and 50-day moving average. The report had supportive tones, which should resonate into firm and steady corn prices well into the first few months of 2022.
March 2022 corn futures have recently traded near overhead technical resistance on daily charts. $6.33 was the high from the June 10, 2021 (a USDA report day), with $6.40-1/2 the previous high from May 7, 2021. On the lower end of the range, support is now firmly at the $6 level.
$6 corn is fair value
One year ago, the USDA pegged corn carryout on USDA reports near 1.5 billion bushels for the month of January, February, and March. Without any dramatic change in ending stocks for those three months, the price of March 2021 corn futures traded in a sideways pattern where the $5 area held as support while the $5.60 area held as resistance.
Of interesting note, one year later, U.S. corn carryout is again at 1.5 billion bushels. The difference now, though, is that March 2022 corn futures is now trading in a range where $6 is support and $6.40 is resistance -- one dollar higher than one year ago with the same ending stock number.
In my opinion, although the price of corn is higher than one year ago (despite ending stocks at the exact same level), last year at this time we were not faced with tight ending stocks in nine grain and oilseed commodities, which is today’s current reality.
One year ago we were riding the demand wave higher with only a slightly smaller corn crop. Now we have strong demand globally, and tighter supplies at a global level for winter wheat, corn, soybeans, cotton, canola, barley, spring wheat, oats, and sorghum.
March corn trading between the $6 and $6.40 price levels is currently very fair value for now.
Trigger for higher prices
Exactly how many stars would have to perfectly align to see prices rise to $7? Four:
a lower U.S. dollar to help attract export business,
stronger exports to then actually occur,
continued poor weather in South America, and
a continued fight for acres in the U.S. this spring.
Let’s take a closer look.
Demand for ethanol and exports
This week’s weekly ethanol production report pegged production near 1.035 million barrels per day. 105 million bushels of corn were used last week to make ethanol. Going forward, corn use needs to average 100.256 million bushels per week to meet the current USDA projection of 5.325 billion bushels.
Taking a closer look at the January USDA report, corn use for ethanol was increased to 5.325 billion bushels, up from 5.25 mil bu. the month prior. Looking at the current pace of corn use and ethanol production, we are on track to achieve the USDA target.
While the increase in corn for ethanol was welcomed and mostly expected news in January, offsetting this demand increase was a demand reduction in the export category.
Corn exports are now pegged at 2.425 billion bushels, down from 2.5 billion bu. the month prior. But will this change now that South American weather is in question, and Ukraine might be tied up with Russia and thus potentially not available to export any corn?
U.S. corn export outlook
China corn prices remain very high, near a record $11/bu., which could encourage more imports of corn soon. So far for this marketing year China has imported an estimated 13 million metric tons of U.S. corn. According to USDA China will likely be importing nearly 26 million metric tons of corn this year, primarily from the United States and Ukraine.
With all the geo-political drama in the Black Sea right now, would-be global buyers may shy away from Russian and Ukraine grain purchases; there’s a risk for buyers to make a deal today and then be told grain could not be delivered two months from now due to force majeure (military conflict). So that is a psychological edge for U.S. corn exports.
Looking to South America, the first crop corn being grown in Brazil is likely needed to stay IN South America and will likely not be available to export.
Hence, the focus shifts to second crop (Safrinha) corn in Brazil. Remember the Safrinha crop accounts for 70% of total Brazil production, and this is the crop that is exported in late July or early August.
Will China buy in February?
Thanks to the Olympics, the world will be watching China in the weeks to come. Will they import more U.S. grain due to the smaller South American crops?
February will be a busy month in China. Be aware that the Chinese New Year begins in early February, and traditionally the Chinese do very little grain buying during that time as they are celebrating. Next is the Olympics, which will consume China’s attention for the duration of the month. We have no idea if China will solely focus on the Olympics or make time for other political events.
What happens when the Olympics are done and China doesn’t have to put on a good face to the world anymore? These are unknowns grain prices.
What is known, is that so far cumulative U.S. export sales have reached 69.1% of USDA’s forecast for the 2021/2022 marketing year versus a 5-year average of 57.5%. We are ahead of schedule on paper. Cumulative export inspections (grain that has left the country) year-to-date are 16,437,247 metric tonnes. This is 26.7% of USDA's forecast for the 2021-22 marketing year versus the five-year average of 29.4%.
This week it was said that U.S. corn is still some of the cheapest in the world. Spot European cash corn is said to be near $7.40, while Brazil spot cash corn is near $7.80. This should also help increase exports in the near term.
Lastly, it is important to note that a close above $6.40 on the March chart, from a technical standpoint, does potentially point to $7 futures prices. The question would be if there is enough time for the March 2022 contract to achieve that before expiration, or is it something that the May 2022 contract will do? Looking at a continuous weekly chart of only the May 2022 corn futures, there is a gap on the chart, that would be filled if May 2022 corn prices could rally to $6.85.
Corn valued near $6 on the board is absolutely fair value and might be one heck of a bargain.
Reach Naomi Blohm: 800-334-9779, Twitter: @naomiblohm, and [email protected].
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