The corn market has consolidated near the $3.59-per-bushel level, as traders await any further damage reports from Iowa from the lack of moisture and new demand news from China.
For a good portion of Iowa, August rainfall came in at less than 25% of normal. China has already purchased 1.192 million tonnes of corn from the U.S. this week.
Near-term market fundamentals
Keep in mind that the USDA currently believes China will import a total of 7 million tonnes in the 2020/21 marketing year. If we add this week’s sales onto total commitments from China and unknown, the U.S. alone has sold more than 9 million tonnes only three days into the new crop season.
China’s corn prices are up near five-year highs. Even if it has a strong crop, the trade is looking for imports of at least 10 million tonnes and a production deficit of 20 million to 30 million tonnes. If its crop is smaller than expected, China could become a massive importer of U.S. corn. Rains and flooding from typhoons could damage China’s crops.
The current USDA yield estimate is 181.8 bushels an acre, but traders see the potential for a sharp drop in yield for Iowa and parts of Illinois due to the hot, dry weather in August that forced the crop to dry down faster than normal.
Given the severity of the weather in August, a yield of 176.7 bushels per acre (still the second highest on record), is a more reasonable estimate, which would leave ending stocks closer to 2.327 billion bushels. If we assume an extra 8 million tonnes being sold to China, ending stocks would slip to 2.012 billion bushels. This would be the lowest since 2015/16.
Ethanol production for the week ending August 28 averaged 922,000 barrels per day. This was down 0.97% from the previous week and down 98% from a year ago. Total ethanol production for the week was 6.454 million barrels.
Cumulative corn used for ethanol production for 2019/20 is 4.83 billion bushels vs. a USDA projection of 4.85 billion. Stocks totaled 20.882 million barrels. This was up 2.3% from the previous last week but down 12% from last year.
Market Ideas
The extremely overbought condition of the market, a sell signal from stochastic readings, and the sharp drop in open interest suggest the market may be vulnerable to a more serious correction.
However, China continues to buy, and traders see the record yield forecast for the U.S. crop as too high. Key support levels for December corn come in at $3.47¼ and $3.42¼. A close above the key pivot point at $3.59½ would leave $3.72 as a longer-term target.
For daily updates on cattle, hogs, corn, wheat, and the soy complex, visit hightowerreport.com.
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September 03, 2020 at 09:02PM
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