Much is happening in the market, news-wise, but prices have done very little since the middle part of October. This makes sense as neither the bulls nor the bears can find leverage – or both find leverage on alternating days – amid competing fundamental input. Weak economic growth forecasts, pitiful US corn and wheat export demand, and historically low levels of many rivers are bearish. Firm, and in some places rising, basis levels during throes of harvest suggest supply and is still imbalanced. And soybean crush and ethanol production margins are noticeably profitable, while historic drought lingers in the US Plains and Argentina. This is bullish.
Cross currents about, but markets have found equilibrium, thus the recent lack of volume and price swings. The graphic below displays the historical relationship between US corn stocks as a percent of consumption against the season’s average cash price. Spot CBOT corn at $6.60-6.90 is pretty well aligned with the USDA’s projected stocks/use of 8.2%, vs. 9.2% in 2021. Corn, soybean and wheat prices need to be elevated amid tight global stocks, but prices today sit at record levels for mid-autumn. A new catalyst is needed to fuel a new lasting price trend.
AgResource’s work suggests that next major move in CBOT prices will be a function of South American weather in December and January, as well as the release of the USDA’s December 1st US stocks data. Only then will actual US corn and soybean production be known, and only then will the market have a better handle on feed consumption. And while South America very likely produces record amounts of corn and soybeans in 2023, weather issues are present. Subsurface soil moisture is absent entirely across large portions of Argentina’s primary corn belt. La Nina ends at some point this winter, but will stay intact over the next 45-60 days. La Nina is historically very bad for corn output in Argentina. The market cannot tolerate additional supply dislocations.
Opportunity lies ahead for both sides of the market, but one must be quick and engaged with changes in geopolitics and weather to maximize success.
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