(Agrimoney) – Corn futures may continue to fall this month, but not by as much as some investors believe, Australia and New Zealand Bank said, citing the potential for weather damage to crops, including to China’s from El Nino.
ANZ – flagging a “parade of promises” on corn production, with the US crop off to a strong start, and China’s harvest seen at a record high – acknowledged that prices were” likely to grind slowly lower through June”.
The US government has forecast domestic yields at the second highest on record, an idea which has gained credence from early sowings and a strong first condition rating for the crop, with 74% rated “good” or “excellent”.
ANZ also pointed to a dent to prospects from demand in the US, where the Environmental Protection Agency announced that it would mandate less blending of corn-derived ethanol into road fuel than was previously anticipated.
Risks force caution
However, given that US corn crops are still six to eight weeks off the most critical period in their development, weather risks will continue to force caution on the market, ANZ said.
July is typically a key risk period for northern hemisphere corn, bringing the pollination process which is particularly sensitive to heat and dryness.
In China, the second-ranked corn producing country, the onset of El Nino implies “a greater probability of hot and dry summer weather in the North China Plain, where a dearth of rainfall is already beginning to cause comment.
This week, “dryness is likely to build in north east North China Plain,” weather service MDA said.
Downside limited
ANZ said that “we view corn prices as unlikely to fall by more than 5% over June,” given that the pollination period has yet to be reached.
“Only once the market moves past this point without any major weather issues are corn prices at risk of breaking the [autumn] 2014 low,” when Chicago corn futures fell to $3.18 ¼ a bushel on a front contract basis.
Even then, and assuming a decent pollination period, the downside for corn futures is limited, given the extent of bearish bets that speculators already have on the grain, with managed money net short 140,443 contracts in Chicago futures and options as of last week, according to regulatory data.
“The probably of a sharp break in prices is lower given leveraged money or speculative positioning is already decidedly net short,” said Paul Deane, ANZ senior agricultural economist.
