Price action: December corn futures plunged 12 cents as back and forth trade continues to plague the market, settling at $4.94 1/2, although price was just 1/4 cent lower on the week.
5-day outlook: Corn futures gave up most of yesterday’s gains as bearish fundamentals continue to weigh on prices. Weakness in the face of the U.S. dollar index tumbling to the lowest level since June 22nd is a testament to how bearish the fundamental situation is at this juncture. This morning, the USDA reported export sales of 251,700 MT for the week ended June 29 for old crop, right in the middle of pre-report estimates. USDA also announced new crop sales of 418,000 MT for new crop, which was near the upper end of pre-report estimates. This morning, there was also a daily flash sale announcement of 180,000 MT of corn for delivery to Mexico, 45,000 MT for 2022-23 and 135,000 MT for the 2023-24 marketing year. While recent export numbers have not been as poor as those seen in late April and May, we believe the poor performance amid a record Brazilian harvest warrants a cut to the USDA export estimate next Wednesday. The market already seems to be pricing in a cut to yield next week as well, evidenced by an average estimate of 176.3 bushels/acre from a Bloomberg survey. This would be the first cut in yield under the new methodology (since 2013) because of poor conditions. Each cut that has taken place before August has been due to late planting (2013, 2019).
The technical posture remains bearish as well. This week appeared to build a “bear flag” on the daily bar chart, with today’s close testing the bottom end of that pattern. Any further weakness will signify a breakdown targeting $4.50. The recent weakness in price is likely to continue over the next week, barring any major shifts in the balance sheet released on Wednesday.
30-day outlook: Weather across the corn belt has been largely favorable as pollination kicks off. Temperatures are expected to remain mild over the next ten days and regular bouts of precipitation into July 15 will allow favorable crop development, says World Weather Inc. The first summer rally of the year is behind us and price has since made a lower low. The market is pricing in beneficial weather and the large jump in acres seen in last week’s report. It will likely take another weather scare to kickstart another rally, or the realization that spring dryness will have a larger effect on yield than previously anticipated. As it stands, weakness is likely to prevail over the coming month.
90-day outlook: Weakening demand will be of no help to bulls over the next quarter. Brazil continues to take a larger portion of the world export market as it remains a steep discount to U.S. corn. Corn-for-ethanol use remains below levels seen a year ago, despite EPA measures to ensure sales continue throughout the summer. Analysts expect balance sheets to expand nearly 700 million bushels over the course of the next year, according to a Bloomberg survey. This is despite stocks coming in far lower than expected in the June 30 Quarterly Stocks report. Planted acres are seen at the highest level since 2013 and the potential for a record yield still remains despite early season dryness. Barring any major shift in demand or a severely damaged crop beyond what is currently expected, weakness will likely prevail until harvest.
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