Corn: More To Come In This Golden Crop’s Marathon Rally
Investing.com | Feb 10, 2021 03:57
As this year’s best-performing edible commodity, corn has barely taken a break from its marathon gains since May 2020.
While some consolidation over the past two weeks has longs wondering if an upside limit has been triggered, both fundamentals and technicals suggest the rally in America’s golden crop has some way more to go.
After a 25% gain in 2020 spurred by the start of the coronavirus-induced global production tightness in almost all crops, corn has tacked on an additional 14% this year to reach peaks last seen in 2014. It has led the run-up across agricultural and softs markets.
In Tuesday’s trade, however, the spot March corn futures’ contract fell from seven-year highs of above $5.71 per bushel to settle at just above $5.52. The correction came after the US Department of Agriculture trimmed its domestic inventory estimates below market expectations. The USDA made that revision despite record demand for American corn from China.
The USDA cut its ending-stock outlook for the current corn season to 1.5 billion bushels from the January forecast of 1.55 billion. Analysts surveyed by Bloomberg expected an 11% drop to 1.38 billion.
Runaway Export Demand For US Corn, Struggling South American Output/h2
Jack Scoville, who heads crop research for Chicago’s Price Futures Group, said Tuesday’s price drop could be an aberration in a longer-term rally, which was powered by runaway export demand for US corn and struggling production of similar products in South America.
In a note emailed to Investing.com, he adds:
“Export demand has held relatively strong as US corn is about the cheapest feed grain in the world market.”
“The main crop harvest has started in parts of Brazil, but progress will be slow due to the late planting dates due to dry conditions earlier in the year. The second crop of corn planting is also being delayed and yield estimates for South American corn have been reduced.”
China’s agriculture ministry on Tuesday affirmed its import outlook at 10 million tons. A government think tank last week increased its estimate to 20 million.
The biggest pork producer in the world, China recently boosted grain purchases to feed its expanding herds of hog, and also supply its sweetener industry, which uses corn starch and syrup.
In late January, Chinese importers took almost 6 million tons of US corn in a single week, a record for a single country. China’s ravenous appetite, coupled with harvest delays in South America, have boosted concerns that supplies in US silos are dwindling.
Tightening inventories backed by Chinese demand haven’t just led to a corn rally; even US wheat and soybean prices are at multi-year price highs. And the buying spree doesn’t appear to be ending anytime soon.
Leading US grains merchant Cargills said last week China’s insatiable demand for food commodities—or for that matter, any raw material—was not expected to slow in the near-term as the Asian giant set its sights on nursing its economy to full growth from the COVID-19 before any country.
Disconnect Between Chinese Demand For Corn And USDA Data/h2
The disconnect between Chinese demand for US corn and the less-than-expected contraction in USDA estimates for the grain’s stockpiles puzzled many analysts. Terry Reilly of Futures International in Chicago was one, telling Bloomberg:
“China remains the million-dollar question.”
Pedro Dejneka, partner at Chicago’s MD Commodities, was another who doubted the government stats, saying:
“USDA’s number for US corn stocks is totally obsolete. (Inventory is) much lower than the USDA says (and the price correction) should be temporary.”
Technical charts are also aligned more for an upside in the near-term, Sunil Kumar Dixit of SK Dixit Charting in Koltata, India, said:
“All short term Moving Averages are bullish advocating a further rally to $5.85-$6.00-$6.30-$6.60.”
“Corn strongly surpassed multi year highs after breaking out above $4.60 and $5.20 important peaks, reaching $5.72."
“In the event of extreme short term correction and consolidation, we could head to $5.30, even $4.97 and $4.45. Below that, buyers will be waiting to resurface. The present momentum, however, appears too strong for such a downside.”
Dan Hueber of Reding Hueber Ag Consulting in Oak Brook, Illinois, posted a similarly positive technical outlook for corn in his daily note to Investing.com, adding:
“We have now moved to within 20-cents of the next price targets (of) between $5.88 (and) $5.90. While nothing says we have to reach that point … this would complete a 50% retracement of the entire range since the 2012 peak.”
That peak was $8.44, reached in August 2020.
On Investing.com’s end, the Daily Technical Outlook recommendation for March corn is a “Strong Buy.”
Should the contract extend its bullish trend, as it’s expected to, a three-tier Fibonacci resistance is forecast, first at $5.70, then $5.77 and finally at $5.88.
But if its weakness lingers temporarily, then a three-stage Fibonacci support is expected to form, first at $5.47, then $5.40 and finally at $5.29.
In any case, the pivot point between the two is $5.59.
As with all technical projections, we urge you to follow the calls but temper them with fundamentals—and moderation—whenever possible.
Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. As an analyst for Investing.com he presents divergent views and market variables.
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