Just over four months into 2018 and we have already seen one bullish surprise for corn as drought hit Argentina and took USDA’s estimate of Argentina’s corn crop down, from 1.65 billion bushels (bb) in December to 1.30 bb by April, a 20% drop from a year ago.
The drought gave U.S. producers a welcome lift in the price of cash corn as DTN’s national index climbed from $3.15 at the end of 2017 to a high of $3.57 by early March. With USDA showing nearly 9 bb of U.S. corn in storage on March 1 and 5 bb held on U.S. farms, the 42-cent gain was a welcome jolt of equity back in farmers’ pockets, but was not out of the ordinary as corn prices were basically following the script of their 10-year seasonal tendency.
Back on April 17, in “High Times for Corn, HRW Wheat?” (here) I explained why it was possible that corn prices had already seen their highs for the year. DTN’s National Corn Index had fallen back a second time from testing its 2017 high, USDA’s corn export estimate of 2.225 bb looked too optimistic, and soil moisture across the Corn Belt was generally favorable, pointing to a good start for crops as long as temperatures could increase in time for planting.
Now in early May, prospects for corn planting are looking better after USDA said Monday that 39% of the crop was in the ground. The exception is in the northern states where progress remains slow and the weather is expected to be on the cool side later this week. However, it’s not the U.S., but Brazil that is concerning corn traders these days. Very little rain has fallen on Brazil’s second corn crop the past 30 days, and the seven-day forecast remains mostly dry, except for a chance of light to moderate showers in south-central Brazil.
Including Monday’s 5 1/2-cent drop, December corn has risen 14 cents the past two weeks, at a time when the 10-year seasonal average typically chops sideways. That is a significant bullish departure, directly related to Brazil’s dry weather. Not only have prices jumped above their typical seasonal path, Friday’s session posted the highest weekly close in 22 months, breaking above the old resistance that I was concerned about in mid-April.
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Monday’s lower price was likely influenced by chances for light rain in south-central Brazil’s forecast and reminds us that prices often turn volatile when weather concerns are at play. Even so, Dec corn is still showing fresh bullish behavior, while Brazil’s second crop needs more rain. Weather is known for untimely surprises and deserves monitoring, but so far, both the forecast and the new high in DTN’s National Corn Index are bullish.
Early June is the typical target for corn’s seasonal high. We have to note the possibility of yield loss in Brazil — coming on the heels of Argentina’s drought earlier this year — is giving corn prices bullish potential not seen in several years.
This market merits close attention.
Todd Hultman can be reached at Todd.Hultman@dtn.com
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