AM Markets: Corn Futures Try to Make it Third Time Lucky

(Agrimoney) – Will it prove third time luck for corn futures? For two consecutive sessions, Chicago’s March corn contract has attempted a close above its 200-day moving average, at a little under $3.70 a bushel, only to come in marginally short.

“Once again March corn tested $3.70 a bushel, but was unable to find enough support to test higher values,” Benson Quinn Commodities said.

Not that the broker was giving up on higher trade, saying that “corn tested its $3.70 high several times during the session on Monday and points to new highs”.

But is Benson Quinn Commodities right? Tobin Gorey at Commonwealth Bank of Australia had an alternative view, that the contract’s failure to break through its ceiling means it might never do.

“The technical tea leaves would interpret Monday’s lack of follow through action as a bearish signal,” Mr Gorey said.

‘Monitor these agreements…’

In early deals, corn bulls actually had the advantage, with the March lot up 0.3% at $3.70 ½ a bushel as of 10:10 UK time (04:10 Chicago time), setting a six month high for the contract.

The lot also stood clearly above its 200-day moving average, over which it has not closed since June.

Not that all news for the complex appears necessarily rosy longer-term, with much comment, for instance, on President Donald Trump’s introduction, in his first day of office, of speed bumps to free trade, in withdrawing the US from the TPP trade agreement, and urging renegotiation of North America’s Nafta deal too.

“New Nafta could slow US pork, poultry and corn exports,” Benson Quinn Commodities said.

“Also, consideration of a border tax has been brought up.

“Exports are a critical feature to a support corn market.  I would monitor these agreements as negotiations take place.”

‘Delaying corn planting’

At RJ O’Brien, Richard Feltes said that “trade is wondering how tweaking of Nafta will impact the US ag export flow to Canada and Mexico which has increased four-fold since Nafta was enacted”.

Mexico, for instance, is the second-ranked importer of corn worldwide, with purchases forecast by the US Department of Agriculture at 13.8m tonnes, and is the biggest buyer of the grain from the US.

Still, more immediately on the market’s mind is how much choice importers will have anyway other than to buy from the US – in short, the prospects for Brazil’s safrinha corn crop, currently in the early stages of sowing.

And plantings have not exactly been going swimmingly, as it were, thanks to excess rains in parts of top producing state Mato Grosso.

“Recent rains have left water standing in the fields thus delaying current corn planting,” said Benson Quinn Commodities, noting that “the forecast is calling for more rain.

“It’s still early in the ideal planting window, but current conditions have put a hold on any progress.”

‘Still an unknown’

As an extra help to corn, fellow row crop soybeans managed headway, gaining 0.8% to $10.65 ¾ a bushel for March delivery, and looking for their first winning session in three.

The concerns over rain and flood damage to crops in Argentina have certainly subsided as little, allowing the reduction in risk premium seen since late last week.

CBA’s Tobin Gorey noted an Argentine farm ministry assessment that “the hot and dry conditions over the weekend have reduced the crop area affected by floods”.

However, the worries have not gone away.

Benson Quinn Commodities said that the price decline in the last session “appears corrective in nature rather than shift in fundamentals, with size of Argentine crop still an unknown heading into key flowering and pod setting in February and March”.

‘Still peppy’

Furthermore, on the supportive side for prices, is the still-strong demand for US supplies, at a time when Brazil’s accelerating harvest is providing enhanced competition.

Monday’s weekly US export inspection data “were still peppy at 1.3m tonnes, versus 1.4m tonnes last week and 1.2m tonnes for same week last year”, one broker said.

That said, soybean bulls should not get too carried away, with ideas of high soybean prices spurring huge US sowings of the oilseed this year, and prompting a recommendation to producers from the University of Illinois to get some forward hedging of a large prospective harvest done.

“Despite strong soybean demand and production issues in South America, the possibility of a large increase in soybean acreage planted and the continuation of excellent soybean yields hang over the rest of this year,” the university said.

“The current bids for 2017 harvest delivery provide a pricing opportunity for locking in prices high in the expected marketing year average price forecast.”

‘Lean supportive’

Wheat futures gained too, if by a modest 0.1% to $4.33 ¾ a bushel in Chicago for March, although Kansas City hard red winter wheat fared a little better in adding 0.3% to $4.46 a bushel, and rebuilding a bit of premium over its lower-protein, soft red winter wheat peer.

“The technicals in Chicago and Kansas City lean a little more supportive than negative,” Benson Quinn Commodities said.

“Neither case on the technicals is very convincing, but the firm closes [on Monday] in Chicago and Kansas City do lean supportive” for the current session.

The continued rise in Russian prices, lifted by a firm rouble, are providing support too, in cutting the competitiveness of supplies from the world’s top wheat-exporting country.

‘Improving US weather’

Less positive for prices is the weather, in terms of the precipitation seen as easing dryness fears in the US Plains, hard red winter wheat country.

Terry Reilly flagged “improving US weather this week, with a snow storm lasting until Tuesday across some hard red winter wheat wheat states.

“Accumulations of 3-8 inches of snow and local amounts to 10 inches are expected,” albeit directed mainly at more northern Plains areas, where dryness is not such am issue.

Snowmelt worries

Indeed, in the very north of the Plains, in spring wheat country, excess water could prove an issue, given the extent of the snows that have fallen over the winter.

RJ O’Brien’s Richard Feltes flagged “the largest North Dakota winter snow pack since 1997”, adding that “trade is mindful of flooding and planting delays that occurred in the spring of 1997”.

The worry is that spring wheat acreage might suffer in the US, which has already seen winter plantings drop to the lowest since 1909.

Minneapolis vs Chicago vs Kansas City

In fact, Minneapolis spring wheat underperformed its winter wheat peers in edging only 0.25 cents higher to $10.65 ¼ a bushel for March, not quite enough to keep its premium over Chicago wheat ahead of the 40-day moving average.

Still, Mr Feltes said he suspected that “trade will embrace Minneapolis wheat gaining on Chicago and Kansas City wheat” for now – as indeed is typical, with Minneapolis spring wheat futures tending to outperform at this time of year, into March.

Furthermore, he flagged that “below-average high protein wheat in the southern Plains, Canadian Prairies, Argentina and the European Union have supported demand for US hard red spring wheat, of which exports sales are up 1.7m tonnes over last year” so far in 2016-17.

A similar dynamic has been supporting futures in oats too, which in the last session took gains in 2017 nearly to 14% before closing lower for the first time in nine sessions.

Besides a drop in Canadian oats output of 12% last year, and the potential for wet-hampered 2017 sowings, Futures International’s Terry Reilly also flagged the USDA stocks report on January 12 showing US inventories down 8.7% year on year at some 76m bushels.

“Bull spreading has been a major feature since the release of the USDA grain stocks report,” Mr Reilly said.