If you caught my presentations on the farm show circuit this year, you heard me pound home the point that I also wrote about over the summer in Farm Futures: Markets in years with late planting may need time to rally, waiting until the size of damage becomes clear with results off the combine.
That pattern looks more and more likely, assuming headline risk from a collapse in trade talks with China doesn’t send traders back to their bunkers. This week’s heavy snow and freeze over the northwest Corn Belt should provide support until more harvest results are in.
That said, I recommended making a 10% sale before USDA’s Oct. 10 report to reward the rally that already improved prices off September lows. Prices appeared to quickly recover on trade deal optimism, bouncing off support at the 50-day moving average and maintaining an uptrend. But unless you can afford to roll the dice and wait, taking some risk off the table remains a good idea unless your very uncertain about what your fields hold and can’t estimate your cost of production.
Charts offer some encouragement, and also some interim targets. The head-and-shoulders bottom confirmed after the Sept. 30 reports targets $4.0975, right around the 100-day moving average and the 50% retracement of the selloff from June highs. More objectives lurk at $4.17 and $4.245.
The December futures chart looks like it is confirming a head-and-shoulders bottom that projects to $4.0975, close to the 50% retracement of the selloff from summer highs, with more targets around $4.24.Toss in carry to July and that pretty much accomplishes the selling targets from my current supply and demand model, which come in at $4.21 to $4.50.
And that’s assuming a crop down nearly 800 million bushels from USDA’s current estimate due to higher abandonment. For corn to go higher than that, the crop will need to be smaller or demand stronger. The former looks more likely than the latter unless a war between Saudi Arabia and Iran spikes oil prices, lifting ethanol usage, or drought develops in Brazil. Both aren’t completely far-fetched, but still probably longshots.
Otherwise, the only demand driver that’s growing is feed usage, thanks to U.S. hog expansion triggered by China’s African Swine Fever outbreak. But there’s plenty of competition in livestock rations too that will limit that source of usage.
In the meantime, funds getting nervous about their large bearish bets in corn should provide fuel for a short covering rally. Weekly crop ratings into November should take on added significance as the market searches for clues into the next official estimate from USDA.
A smaller corn crop could open the door to higher prices but sluggish demand could keep a lid on the rally.
More than half the corn crop in the northwest Corn Belt is at risk of damage from the blast of early winter ending the growing season.
Ethanol margins are starting to improve thanks to higher biofuel prices and DDGSs revenues. But gains came as stocks plummeted following production cutbacks at plants.
Export shipments are off to a very slow start as Brazil provides stiff competition.
Funds are still bearish corn, which should provide fuel for short-covering rallies as traders wait for more news about the size of the crop.
Download a complete version of the outlook with extensive charts and analysis using the Download button at the end of this report.
More from Farm Futures:
Senior Editor Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Adviser. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on corn farming, basis, energy, fertilizer and financial markets feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.
For more corn news, corn crop scouting information and corn diseases to watch for, follow Tom Bechman's column, Corn Illustrated Weekly, published every Tuesday.