- Harry Bennett
- December 19, 2022
- 11:11 am
- 10 min read
Brazilian corn exports surge as futures trading volume drops on the approach to the Christmas break!
Indices
Futures
Forex
– March Corn’23 (ZCH23) – Technically, the market has not changed since last week. Poised between the upper boundaries of the contracting triangle trading pattern. This could either be a continuation of the recent downtrend or a bullish reversal. The lower trendline acted as an area of support alongside the horizontal line drawn at 635.30. Futures held their recent trading ranges despite the U.S. dollar rallying.
– The 50,100 and 200 day moving averages will act as an area of resistance which the market will need to overcome.
– The corn market was mostly in the red on Friday during what was a lacklustre end to the week. March was up 9 cents from last weeks close whilst trading took place between 644.40 and 660.00. Trading appears subdued as we approach the festive period.
– Little change to the managed money’s (MM) net long position which currently stands at 127,106 contracts net long. This is following the net addition of 6,893 contracts for the week ending December 13th 2022. Commercial corn traders closed out more of their shorts, taking their position to 367,770 contracts.
– For the week ending December 8th sales of Soy were the second biggest week so far in 2022/23 at nearly 3 million mt. Corn sales were also higher than the trade estimates at 958,900 mt. Guatemala were the leading buyer at 170,800mt with Mexico (170,800mt) and Unknown destinations (137,000mt) 2nd and 3rd biggest buyers.
– Overall corn bookings for 2022/23 now stand at 20 million mt or 787.5 million bushels which equates to nearly 40% of the WASDE’s full year forecast. Strong sales will be needed if the U.S. is to meet this forecast.
– Corn is still finding some support on lack of farmer selling but weak demand wanes on the market both in the short and long term. This is perhaps reflected in the price of Z’23 which is currently trading at a 50 cent or more discount to the front month.
– Weekly U.S. ethanol production fell by 16,000 barrels per day (bpd) last week to 1.061 million bpd. This would be considered a bullish factor but stocks climbed up to 24.409 million barrels which is a new record for the month of December.
– Consumer price index inflation figures came in lower than expected at 7.1%, this resulted in the Federal Reserve raising its benchmark interest rate by 50 basis points during its December FOMC meeting. This perhaps signalled a shift in the battle on inflation despite indication that more rate increases are likely.
– The Dollar index continues to hover around the 104.00 – 105.00 mark (chart below), the weaker USD is supportive for corn exports as they become more competitive on the global stage. U.S. corn will still need to compete against South American corn which has become far more competitive given the size of their crops.
– Brazil’s state of Rio Grande do Sul has been struggling with the lack of rains which has negatively impacted yields and output estimates. Stone X estimate the state will produce 4.51 mmt during the first cop harvest of 2022/23, down from its previous forecast of 5.38 mmt.
– Brazilian exports remain fiercely strong, according to export group Anec they predict exports in December will be close to 6.7 mmt. That would be an increase of 1.3mmt from their previous estimate and would highlight the strength of the Brazils exports over the past 5 months.
– Brazils fertilizer prices have plummeted by almost half from their April highs. According to the Brazilian National Fertilizer Association, fertiliser deliveries in the country fell by 8.7 percent during the first seven months of this year compared last. Farmers have been holding back on purchase as prices start to cool. However, agencies around the world are raising their price assumptions moving forward on the basis that gas prices are higher along with overall production costs amid Russian supply constraints.
– China is moving towards rapidly opening their economy but concerns remain around the economic impacts caused by the significant length of lockdowns. Demand may start to pick up now that things open back up but we dont think it will it be as fast a return to norm as most are expecting.
– China’s (Dalian) futures have continued their countertrend move to the downside. We have highlighted the 2,769 yuan per tonne as a good buying opportunity as this coincides with the 38.2% Fibonnacci retracement level. (chart below)
Conclusion
Whilst the market has bounced it sill needs to move decisively above key areas of resistance in order to change the technical outlook. The issues with drought have become more prevalent, especially in South America which impacts the overall global balance sheet. There is still a big question mark over demand as China are still not buying U.S. corn and are heading into the Lunar New Year holiday. The funds position has been axed which may continue to railroad the technicals and fundamentals.
Written by:
Harry Bennett
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