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Looking to the Futures - January 17, 2019

Corn Markets see Room for Improvement in 2019

Hovering near the five year average price, Corn prices could be set up for a pivotal year in 2019.               

Corn remains the world’s most widely grown crop with global production in excess of 525 metric tonnes each year, with the United States ranking as the top producer and also the leading exporter. Variables that can impact Corn prices include seasonality, crop and inventory data, weather, the price of crude oil, and U.S. dollar strength. All things being equal, seasonal patterns typically lead to corn prices peaking in late summer and bottoming out in the winter.  

Corn Futures market participants include individual traders, grain elevators, farmers, investors and commercial firms who trade this fully electronic contract. Corn Futures are the most liquid and active market in grain and oilseeds, trading on average more than 350,000 contracts per day.

The bullish case for Corn prices in 2019 might include a pause to the rallying dollar and hopes for Chinese trade progress. But the ability to continue achieving exceptional crop yields in the U.S. could counter a Corn rally with excess supply. The partial government shutdown has shrouded the market with a degree of disorientation, as important market data feeds aren’t being delivered. 

One report that continues to publish is the USDA Grain Export Inspections, which shows the grain that has passed through the inspection process and is leaving for export. Other data from the Foreign Agriculture Service unit of the U.S.D.A. has gone dormant as the partial government shutdown drags on. The market hopes business at the USDA gets back to normal before March when the Administration reveals important planting intentions contained in the Prospective Plantings Report. The report details the quantity and type of crop U.S. farmers intend to plant in the U.S.

Participants in the ethanol industry are trying to gain the administration’s nod to blend more ethanol into U.S. motor fuel for year-round use. The objective to bump the Corn-based ethanol weighting for year-round sales from 10% to 15% before summer may now be at risk as policy negotiations grind to a halt. Corn producers, and the agriculture industry in general, are pushing for E15, and President Trump made a campaign pledge to fight for it. The oil industry has teamed up with some environmentalists to fight the initiative.  

If traders think the lack of market data is impairing their vision, it’s not causing them to shy away from trading Corn Futures. Open interest at the CME recently neared a seven-week high of 1.64 million contracts.

Regarding Chinese demand, CNBC guest Senator Chuck Grassley recently commented that U.S. Trade Representative Robert Lighthizer hinted at only minor progress in trade talks with China last week. While the market anticipates fresh news of Chinese purchases, evidence of this materializing is so far lacking. Still, multiple sources suggest that ongoing talks are very active and there continues to be great progress made on U.S. agriculture products. Another round of trade negotiations begins January 30. Once the partial shutdown is resolved, there is chatter that USDA reports may reveal multiple China purchases of corn and by-products including ethanol, pork, and dried distiller’s grains.

Technicals for March 2019 Corn Futures

With the poor technical action seen last week, market watchers are guessing that speculative positions may have been liquidating over the last few days. In general, technicians seem to be bearish in the short-term. A recent close beneath the 18-day moving average indicate the trend could be turning down. Bearish indicators with a crossover down were observed in the daily stochastics. The close below the 2nd swing support line also aligns with bearish bias. . Resistance will likely be at $3.77 on March, and $3.80 above that, with support at $3.68 on further weakness

Key Reports and Factors that Can Move Corn Prices

  • Weather Events Across the world, the local weather in specific growing regions may impact the supply and thus the price of corn.
  • USDA World Agricultural Supply and Demand Estimate (WASDE) Report offers a monthly comprehensive forecast that often shifts the corn market in an unexpected direction. (off line due to shutdown)
  • USDA Prospective Plantings Report This reportscheduled for March release, details the quantity and type of crop U.S. farmers intend to plant in the world’s top exporting nation for corn.
  • Grain Stocks Reports Issued four times a year by the National Agricultural Statistics Service (NASS), these reports offer updates on stocks of corn and other major grain & oilseed crops by state and by position. (off line due to shutdown)
  • Crop Production Reports Weekly U.S. export report from the world’s largest exporting country for corn offers insights into global demand. (off line due to shutdown)

Trading Calendar:

Housing Starts                                                                  01/17/2019 8:30 a.m. ET

Jobless Claims                                                                 01/17/2019 8:30 a.m. ET

EIA Nat Gas Inventories                                                   01/17/2019 10:30 a.m. ET

Grain Export Inspections                                                  01/22/2019 11:00 a.m. ET

Last Trade Feb ’19 Crude Oil Futures                              01/22/2019

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