- Harry Bennett
- March 5, 2023
- 5:10 pm
- 10 min read
Sluggish U.S. export sales leads to a big sell off for Corn futures!
Indices
Futures
Forex
– May Corn’23 (ZCK23) – May (ZCK23) has continued its sharp reversal after meeting strong resistance at 683.10. The failure to break out and retest the $7.00 handle has led to a very impulsive move to the downside. The market slipped below the 23.6% Fibonnacci retracement at 643.30 before moving to a new low at 622.20. The market as since bounced at this level but could potentially be a dead cat bounce.
– This week, corn futures traded within a 30 cent range between 622.20 and 652.20 going into the weekend. Daily Corn futures volume averaged 382,460 contracts across the board. On Friday, options trading had a distinct skew to the calls with preliminary data on showing 13,004 calls compared to 5,666 puts.
– Despite weeks of strong U.S. Export sales, sales on Thursday were sluggish at 598,000mt (table below) for the week ending 23rd February 2023. This was certainly at the low end of trader estimates and week on week decline was 27%. Export shipments came in at 666,000mt which has been pretty consistent with the prior 2 weeks.
– We are always on the look out for large flash sales which are reported in the daily sales channel through the USDA. The last flash sale was relatively small with 120,800 mt of Corn booked to unknown destinations on the 17th Feb 2023.
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The CFTC commitment of traders data revealed the managed money (MM) had slightly reduced their net long position for the week ending 7th February (Noting the CFTC are still 3 weeks behind). As of this date, the MM were 198,129 contracts long although we suspect this position is a lot lower given the price action on the futures market.
– The latest National Weather Service Climate prediction models (seasonal temperature & precipitation) were released on the 28th February. The outlook for March shows many parts of the USA will be facing cooler than normal temperatures. However, the probability of above average precipitation prevail in some key producing states.
– Soybean harvest is only 17% complete which is in line with the 2021 harvest and far below the 37% average. Excessive rains continues to impact growers ability to get in the fields. As such, Brazilian corn planting continues to run behind schedule. The Southern region of Paraná is only 26% planted which is far below the 52% average.
– The situation has marginally improved in Southern Brazil and Northern Argentina after recent rains but Argentina’s battle with extreme drought and crop losses look large.
– Brazilian preliminary Feb export data shows Brazil’s corn shipping window is close to its end as we await the second Safrinha crop. Export volume in February was still above normal which has been the case for the majority of the marketing year.
– Buenos Aires Grain exchange crop conditions report showed quality had once again taken a turn for the worse in Argentina. The Corn crop condition shows 56% is in poor condition which is down a further 5% from the prior week. With just a tiny % of the crop in good condition there is a concern that further heat stress will be disastrous.
– The market will now be looking ahead to the March WASDE report which is due for release on Wednesday 8th March 2023.
Conclusion
The lack of export demand has caused this market to capitulate in the past seven days despite delayed planting in Brazil and a disastrous Argentinian crop. We suspect the funds have made a significant and swift head for the exit on their long position. The Brazilian winter crop has been finding its way to China who are taking advantage of the surplus left in country. Positive economic data from China is considered as a potential driver for new demand but the market will need to see evidence of this through export sales. For now, the technical picture looks problematic and we suspect bulls will need some fresh news to reignite their optimism.
Written by:
Harry Bennett
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