Price Drop Encouraging Corn Export Demand

October 30, 2013 01:22 AM

What Traders are Talking About:

Overnight highlights: As of 6:15 a.m. CT, corn futures are around 1 cent higher, soybeans are mostly 6 to 10 cents higher and wheat futures are 2 to 3 cents higher. Firmer price action should continue at the start of the daytime session, but the challenge will be to find sustained buying interest through the day. Cattle futures are expected to open mixed, while hogs are seen opening slightly lower.


* Price drop sparks corn demand. Front-month corn futures have dropped to their lowest level since September 2010 this week as the harvesting of record supplies is zapping buying interest. But the price drop is encouraging more active export demand. South Korean feedmakers purchased 368,000 MT of U.S. corn for March and April delivery, which follows the purchase of 140,000 MT of U.S. corn by another South Korea firm on Tuesday. Obviously, corn futures have dropped to a "value" level for South Korean buyers. The question is whether this sparks active demand from other global end-users. A Taiwanese firm also bought 60,000 MT of U.S. corn overnight.

The long and short of it: For the corn market to put in a seasonal low, it's going to take sustained export demand that signals the drop is price has been low enough for long enough to rebuild the demand base that was slashed by the runup to record prices in the summer of 2012.

* FOMC meeting concludes this afternoon. It's a very safe bet the Fed will make no changes to monetary policy following the conclusion of the two-day Federal Open Market Committee (FOMC) meeting this afternoon. The Fed is not going to raise short-term interest rates and investors know that. Therefore, they are hoping to get a clearer indication of when the Fed will begin scaling back its monthly bond purchases, though that may be wishful thinking. Expectations for the tapering of economic stimulus have been pushed into next year as the pace of U.S. economic growth remains slow.

The long and short of it: Market participants will closely dissect every word of the Fed's post-meeting statement for a clue as to when the tapering may begin, but it's unlikely there will be any solid answers today.

* Brazilian growing season off to favorable start. The Brazilian soybean crop is nearly half planted and weather conditions are generally favorable across the major growing regions, according to South American crop consultant Dr. Michael Cordonnier. His Brazilian soybean estimate is at 88 MMT, but he has a neutral to higher bias going forward as farmers may decide to add more soybean acres. Meanwhile, full-season corn planting in Brazil is nearly complete and the crop is off to a good start. Dr. Cordonnier's Brazilian corn estimate is 70 MMT, but says he has a neutral to lower bias as safrinha (second season) corn acreage may be reduced more than anticipated. In Argentina, soybean planting is just getting started, while the corn crop is nearing one-third planted. Dr. Cordonnier's Argentine soybean estimate stands at 55 MMT and he has a neutral to higher bias going forward due to the potential for more corn acres being switched to soybeans. His Argentine corn estimate is 25 MMT and he has a neutral to lower bias.

The long and short of it: Barring very poor weather conditions this year, which aren't forecast, Brazil will grow a record bean crop again this year. But logistical issues should keep the window for U.S. soybean exports open into at least early spring.


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