USDA’s February WASDE report had more feed for the bulls than the bears. Last week I was elated at a corn market showing “signs of life.” The monitors continued to show improvement this week. In Thursday’s WASDE, the trade was looking for only a slight haircut for ending stocks, with pre-report guesstimates averaging 2.468 billion bu. vs. 2.477 billion in the January WASDE. But USDA agrees with ideas that dryness in Argentina is going to trim their crop and competitive pricing for U.S. corn caused USDA to hike the export forecast by 125 million bushels. That took ending stocks to 2.352 billion.
A pleasant surprise in the global stats, too. The average pre-report trade estimate for global corn ending stocks was 204.7 million metric tons, down almost 2 mmt from last month’s 206.6 million. It went down by 3.5 million thanks to reduced production estimates for Argentina and the Ukraine. Ending stocks for all coarse grains (corn, sorghum, oats and barley) went down even more, by 3.7 million tons.
I think there might be more good news coming on the demand front in next month’s WASDE: Ethanol production is running well ahead of the pace needed to meet USDA’s current forecast for corn used for ethanol. USDA currently has it rising less than 2% from 2016-17 but ethanol production so far this season is running 20% ahead of last year.
The technical picture is more somber. Reward the rally – but modestly. March is in a very clear and quite robust uptrend, but it hit the ceiling of long-term overhead resistance shown and couldn’t punch through, even with Thursday’s price-friendly numbers from USDA. Notice the high trading volume as well on Thursday. That means an awful high level of trading taking place, possibly by funds who had been extremely short (nearly 220,000 contracts) when this rally began last month. But this rally must also have attracted a wave of farmer selling to absorb that short-covering by funds, which would explain the remarkably high volume for such a modest price range from high to low on Thursday.
Looking at new crop December futures, the rally has yet to “test” long-term overhead resistance like it did in the March. It may be wise to start some new crop pricing to reward this rally, but only very lightly. Acreage guesstimates for this spring are down from last year. Then we’ve got the reality that this year, we don’t have nearly the robust profile of subsoil moisture we had last year in some important states. Here’s a picture of the Palmer Drought Index, which assesses subsoil moisture supplies:
Notice the remarkable contrast between the block of states in the heart of the Corn and Soybean belt in the lowest 1% of their history for subsoil moisture, while right “next door” down the Ohio river valley to the Midsouth and Delta states they’re at the high end of their own historic subsoil moisture supplies. For all these reasons, I believe the rally at hand should be rewarded only “modestly” with sales you need to make to meet cashflow needs to mid-March, but not much more than that.
The views expressed in this article are the author's alone and not those of Farmer's Business Network, Inc., its affiliates or members.
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