Corn pile

Weekly Corn Review - Can corn rally despite huge supplies?

Acreage cuts and index funds could help the market overcome bearish fundamentals.

The corn market is defying gravity as trade begins in 2017. Whether bulls finally look down and blink could depend on what happens in Washington in coming days and weeks.

The immediate news out of the nation’s capital comes Jan. 12, when USDA releases its largest data dump of the year. In addition to final production estimates, the agency also reports Dec. 1 grain stocks and world supply and demand.

Our Farm Futures survey showed the crop around 175 million bushels smaller than USDA’s previous estimate. Combined with stronger usage for ethanol, that could knock around 200 million bushels off projected 2016 crop ending stocks. That’s the most bullish estimate in the industry right now, and it isn’t very bullish. So why would the market have a chance to rally?

That’s where the second flow of news from Washington could help. If the new Trump administration follows through with promises on infrastructure spending and tax cuts, it could ratchet up expectations for inflation. That could be enough to get investors interested in commodities again, creating a rising tide that could lift all boats.

Some of that spirit was seen in the run up to this week’s rebalancing by index funds used by investors as a proxy for commodities. The most well-known of these, the Goldman Sachs Commodity Index, is set to increasing weightings for corn as a part of its annual rebalancing. That prospect alone created some momentum for corn as other traders tried to front run the event.

Betting on renewed love from Wall Street is far from a slam dunk. The Federal Reserve could keep raising interest rates to combat inflation, a move likely to keep the dollar strong. Normally a strong greenback is bearish dollar-denominated commodities, though recently all the normal correlations have been thrown out of whack. Corn has shown a positive correlation to both the stock market and the dollar. 

Even a corn trading range out of the USDA reports would be helpful if it helps the market avoid its usual downturn into February. Corn seasonals are actually looking like they want to follow the trend seen in bullish years. More than index fund buying may be needed for that trend to play out in earnest.

Ideas farmers will cut acreage in 2017 could provide that impetus. Farmers already appear to have slashed wheat ground in response to poor profits. We’ll report results of our latest survey Jan. 19, on the first day of the Farm Futures Business Summit. 

A rally to buy corn acres in March and April could provide lift for old crop sales. Still, expectations should be modest. Basis is below average and likely won’t strengthen more than usual. Large supplies of very cheap wheat and sorghum should see to that. The nearby chart suggests futures have potential to make a run to $3.70 to $3.85 if the market can break above $3.60. Moving beyond that likely would take growing season weather. Storing large amounts of inventory unpriced that long is too big a risk for most growers.

 More from Farm Futures:

Weekly Fertilizer Review
Weekly Energy Review
Weekly Basis Review

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.

 

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