- Harry Bennett
- November 28, 2022
- 4:41 pm
- 10 min read
Strong export sales for Corn and Soy with Mexico once again the main buyer!
Indices
Futures
Forex
– March Corn’22 (ZCH23) – Little change in the technical picture for Corn futures as the market remains locked between the 100 and 200 day moving average. The contracting triangle remains intact as the market remains undecided on its next move. Despite the market looking poised to climb higher, traders have been reducing their long bets in Corn which suggests they are now expecting downside pressure.
– Key areas of resistance to overcome are 674.00 and 682.50 (61.8% Fibonnacci Retracement level). Support can be located at the 100 day moving average around 660.00 which is reinforced by the lower trendline drawn in black.
– The shortened trading week for Thanksgiving saw the front month March contract trading within a 24 cent range between 659.00 and 673.00. Daily futures volume has tapered off as we approach the month end, the daily average across the board was just 210,656 contracts which is nearly half the trading volume of the prior week. Overall open interest has fallen to 1,295,856 contracts.
– Last weeks CFTC Commitment of traders report will be released on Monday because of the holiday. We suspect the report will show a further trimming of the funds long position because of the declining open interest.
– U.S. sales were at the low end of estimates despite the large flash sales to Mexico who were once again a big buyer of U.S. corn. Net sales of 1.850 millon mt were split across Mexico (1,704,700mt), Saudi Arabia (49,800mt) and Guatemala (34,800mt).
– Despite the strong sales to Mexico there is a concern that the move to remove the GMO requirement for corn imports will harper the demand for U.S. Corn as other alternatives may become more attractive from a price perspective.
– Data from the Energy Information Administration (EIA) showed ethanol production ramped up in the week ending November 18th. The biofuel production increased to 1.041 million barrels per day which was up from 1.011 the prior week. Inventories are now the highest since 21st October at 22.829 million barrels.
– Dry conditions have been in place across most of Nebraska which has suffered from immense drought this year. It is estimated that the conditions may cost Corn, Soy and Wheat farmers nearly $2 billion. Farmers are cutting back on acreage for next year’s crop due to lower yields and increased input costs.
– Gro intelligence models project the 2022 U.S. corn and soybean crop yields will be 169.8 bushels per acre (bpa) and 48.9 bpa respectively. This below the USDA’s November estimates of 172.3 bpa and 50.2 bpa. Hot temperatures and bouts of drought during critical pollination periods the largest impact on yields.
– Weighing on prices is the extension of the Black Sea grain initiative and the ongoing lockdowns in China due to COVID-19. Protests have broken out in China because of the lockdowns and the absurd zero COVID strategy that is underway.
– Dalian (Chinese) corn futures appear to have broken to a new (chart below) short term high on Friday. The January contract was up another 37 yuan per /mt (1.29%). The market looks poised to test the 30th May highs as demand remains strong.
– We have mentioned the prospect and potential of Brazilian corn exports to China before, however this week the first shipment is set to depart from the Port Of Santos. It is expected that around 6 vessels will be departing to China totalling as much as 368,000mt in November. COFCO reported as the main buyer.
– In Brazil, there are plenty of headaches surrounding the weather and lack of rain. Spotted rains and big storms have also hit some growers crops hard. Good rains are forecasted from next Thursday onwards and moving into December. The Dec/Jan’23 window is a crucial period for crop development, if rains are not seen there could be big big problems.
– Conversations with some growers in Brazil highlighted the potential issue around diesel shortages and its negative impact on the agricultural sector. Prices of diesel have climbed which is driving up overall input costs. This may cause some growers to look at reducing acreage with a focus on boosting yields.
– Domestic demand for Corn in Brazil remains subdued, whilst there is an uptick of 2.5 mmt in exports the market has to consider the 10 million mt increase in production. Some of this will be absorbed by the domestic market but large amounts will need to go into ending stocks, meaning Brazil is likely to start building corn reserves.
Conclusion
The weather premium for the U.S. market is firmly in place as yields may be reduced further due to persisting droughts. Whilst the Brazilian crop is not in trouble just yet, issues with drought and production would have a significant impact on the global supply chain. In China, demand remains strong as Dalian futures continue to climb higher. The funds have really axed their long position which could be the catalyst to move this market lower. The extension of the Black Sea grain initiative is not supporting the bulls as export flows look to be sturdy. A decisive move above key resistance levels and contracting triangle is needed to bolster this bullish tone.
Written by:
Harry Bennett
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