Corn Prices Expected to Surge on Drought and Yield Concerns

Corn prices increased due to fund and technical buying. There is speculation that the USDA may lower its yield estimate due to drought conditions. Analysts anticipate tighter domestic ending stocks and are monitoring production updates from Brazil. Additionally, the U.S. Energy Information Administration will release its weekly report on ethanol production and stocks this week.

The USDA's weekly update is expected to show a slight improvement in the corn condition rating, but it will likely remain at multi-year lows. The USDA might reduce its corn yield projection due to the widespread drought, which would be an uncommon move this early in the season.

Corn export inspections for last week were lower than the previous week and the same week last year, primarily due to reduced exports to Mexico and Japan. No corn was shipped to China as Brazil maintains a price advantage over the United States with its record first and second crops.

There are uncertainties surrounding corn output as yield estimates are expected to be lower, but the planted acres report indicated a 6% increase compared to the previous year. The U.S. corn crop faced significant challenges due to dry weather conditions, but July has brought wetter and cooler weather patterns, benefiting the recovery of many major corn-producing states.

In the May 2023 World Agricultural Supply and Demand Estimates (WASDE) report, the USDA provided the first official estimates for the 2023/24 marketing year. The forecast reflected the influence of economic factors on the corn market, with high prices in recent years incentivizing supply and discouraging use. The report projected a significant increase in the stocks-to-use ratio for U.S. corn compared to the previous marketing year. This increase was attributed to a rise in planted acres and a record projected yield, resulting in a substantial increase in corn supplies and a decrease in price.

Since the May 2023 WASDE, drought conditions have worsened. Although recent storms brought some relief, there was also extensive damage caused by hurricane-force winds. The current corn condition ratings are at near-record lows, making it highly unlikely to achieve a record yield.

Considering the relationship between days of use on hand and corn prices, lower yield estimates would lead to higher prices. The USDA's projected farm price is $4.80 per bushel. However, a lower yield could decrease the carryover supply and result in higher prices, with a yield of 173.3 bushels per acre potentially leading to a price of around $6.00 per bushel.

Similar market fundamentals were observed in 2012 when corn prices reached record highs. USDA projections during that period anticipated an increase in corn carryover, but the drought significantly reduced yields and led to higher prices. The final carryover numbers and prices for the 2023 corn crop will depend on the progression of the growing season. Improved conditions may lead to lower prices compared to 2022, while continued dryness could delay downward price movement and present profitable pricing opportunities in the coming marketing years.

Data for Technical Analysis (5H) CFD US Corn Futures - Dec 23 (ZCZ3)

Resistance : 484.17, 484.97, 486.26

Support : 481.59, 480.79, 479.50               

5H Outlook

Source: Investing.com                                  

Buy/Long 1 If the support at the price range 481.09 - 481.59 is touched, but the support at 481.59 cannot be broken, the TP may be set around 484.26 and the SL around 480.80, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 484.17 - 484.67, TP may be set around 486.20 and SL around 481.30, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 484.17 - 484.67 is touched, but the resistance at 484.17 cannot be broken, the TP may be set around 480.88 and the SL around 485.00, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 481.09 - 481.59, TP may be set around 480.00 and SL around 484.45, or up to the risk appetite.       

Pivot Points Jul 13, 2023 01:30AM GMT

Sources: Brownfield Ag News, Farm Progress