After the explosive price movement a year ago, 2020’s price action in corn and soybeans feels almost comatose. But all hope is not lost for market bulls as chart action continues to be construed positively. July Soybeans scored a fresh high for the move mid-week and managed to close above the 100 Day Moving Average (DMA) for the first time since January 17. With the move over the 100 DMA, it technically opens the door to test $8.81 ½ which is 38% retracement of the January high to April low. If the market takes out the retracement target, the high scored on March 25 at $8.98 and the 50% retracement point of $9.01 will be the next upside target zone.
July corn tested the recent highs of $3.34 ¾ early in the week but wasn’t able to take it out, which was disappointing. On a positive note when it pulled back, it held both the 20 and 50 DMAs. The overall uptrend line that has been in effect since the double bottom was scored on 4/24 and 4/29 continues to hold. If the near-term resistance is taken out, we look for a technical move to test the 100 DMA currently at $3.47. The 38% retracement of the January high to spring low is at $3.44 as well.
Corn sales disappoint
On the fundamental side of the equation, weekly corn sales continue to be disappointing while soybean sales continue to be impressive as China was a big buyer again this week. Ethanol demand continues its rebound. This week’s EIA report from the Department of Energy noted that ethanol production was up for the seventh week in a row at just under 86 million bushels of corn usage; this was almost a million bushels above last week and 33 million bushels off the marketing-year low. We estimate that the ethanol industry is currently running 35 to 40 cent gross margins which should encourage grind to continue to increase. With ethanol trading below the cost of RBOB, we expect to see export demand for ethanol. China has seemingly been testing the waters recently importing small amounts of US ethanol.
Weather is being watched closely after the drop in crop condition ratings this week. Some areas are certainly in need of rain or further rating deterioration is possible. A good portion of Indiana is now abnormally dry according to the most recent Drought Monitor update. We expect to see an additional drop in Monday’s ratings as the Eastern corn belt continues to show signs of stress due to the lack of rain. With some weather forecasters calling for a warmer and drier than usual July weather pattern, these forecasts will take on an increasing role determining whether or not the market can make a sustained move higher.
Our preliminary estimates for the month’s end USDA acreage survey is that planted corn acres will fall from the current estimate of 97 million acres to something closer to 94 – 96 million. We look for soybeans to pick up roughly ½ to 1 ½ million acres (84 -85 ½ million). We are also anticipating the quarterly stocks report to show a higher than normal feed usage, which could be a necessary piece of information for the market to turn bullish. We feel the increase in corn feeding was due to the spike in DDG pricing when the ethanol industry more or less shut down due to the lack of demand during the onset of COVID-19.
In summary, do not give up on the market moving higher. The combination of a positive chart action with some bullish fundamentals could give us the fuel to get some summer excitement in the grain market like we have seen in the stock indexes recently.