The factor of the likely harvest reduction in Brazil dominates the corn market at the moment. While the USDA forecasts the harvest at the level of 82 million tons, the local consulting companies expect it to reduce to the level of 75.8 million tons. The money managers are aggressively buying, and the rate of exports in the United States is growing. However, the factors that put pressure on the price will not let the corn futures to overstep the mark $ 4.70 without the new drivers.
Primarily, it is worth discussing the behavior of the money managers. For the week ending June 7, the money managers increased the net long position of corn by 59%. Moreover, they did not leave other agricultural commodity markets without attention. The money managers were buying almost everything - from wheat to coffee. The overall predisposition of funds to buy is unlikely to quickly evaporate, and this fact by itself provides support to the market.
Source: Saxo Group
A sharp increase in the U.S. exports categorically confirms the increasing external demand for the U.S. corn. In just one month the total volume of accumulated corn exports and pending sales exceeded the 2014/15 indicator at the same time of the year. If expressed in percentage, as of the first week of June, the U.S. exporters realized the USDA forecast by 96%. Surprisingly, it is the best indicator over the last 4 years.
Well, the market can now be considered "bullish", however, I wish to recall the pressure factors that remain in force.
Firstly, the global balance, even taking into account the probable losses in Brazil, does not indicate the possibility of the corn shortage in the world. Moreover, the corn futures is already overpriced relative to its balanced level, calculated on the basis of the dependence of the corn futures price and predicted values of the stock-to-use ratio. Also, it is worth recalling that the reduction of corn ending stocks in China, projected for 2016/17, creates the illusion that the global corn ending stocks in 2016/17 will also decrease. Despite the reduction in stocks, China does not intend to export corn, hence, this will not affect the global demand.
Secondly, judging by the forecasts of the USDA and the GIC, in 2016/17 the world expects an even greater harvest and even greater stocks of wheat than a year earlier. In the meantime, the difference in wheat and corn futures price in June renewed the record minimum for the last three years. This means a greater demand for wheat on the part of animal breeders because of its better nutritional qualities. In other words, the current wheat price does not involve a relatively high corn price. Or, at least, wheat will inhibit the growth of the corn price.
Thirdly, according to the USDA data as of the third week of June, the proportion of the U.S. corn crops in good and excellent condition makes 75% - the second highest indicator for the last 6 years. This is in line with the current U.S. corn harvest forecast - 168 bushels per acre. Even with the growth of exports the USDA expects the U.S. corn ending stocks to increase in 2016/17, and these predictions have every chance to materialize.
The corn harvesting campaign in Brazil passes its equator in July. Until that time, the lack of more or less accurate assessment of the outcome of the crop in Brazil will support the corn price. It is also possible that the money managers' activity increase the price to the key resistance level in the range of $ 4.70. However, the perspective of increase in the corn ending stocks against the background of the excess of wheat surplus will put pressure on the price, not letting it to step over a specified level of resistance.
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