Price Direction - Thursday, 04 February 2016

Corn has rebounded close to $.25 since the low set in early January. Corn will likely face tougher technical resistance within the next $.10 to $.20 to move much higher according to Kevin VanTrump of the VanTrump Report.  “I wish I could tell you I’m bullish, but I’m a little nervous about how much further the recent rally can extend itself.”  One of the components for moving the market higher was the hope that when the Funds, that were heavy short positions covered those contracts that the price would rally a significant number of those contracts have now been covered.

The U.S. Dollar has slipped the last several days but the overall strength of the Dollar compared to the depressed South American currency is another obstacle in the way for prices.  Producers in South America are finding record contract highs for corn which is boosting interest in the planting of more second-crop acres than many had predicted just a couple of months ago.  The weather has also improved, bringing beneficial rain just in time for filling soybean pods, and recently the longer term forecast has shifted and the weather for Brazil is likely to entice more acres to be planted and produce yet another record setting crop for 2016.

The USDA will be holding the 2016 Ag Outlook Forum later this month and many traders expect them to add an additional 1-2 million acres of corn compared to last year’s number and also project trend-line yields likely at or above 168 bushels per acre.  Basically, the weather story in South America appears to be over and farmers there are receiving record high prices, the Funds have covered their contracts and the USDA is likely to forecast more corn acres and high yields for 2016. 

Soybeans also appear to be facing an uphill price battle.  With the improved weather conditions in South America and well timed moisture for pod fill, record production is now expected according to several private analysts.  Soybean acres are also predicted to rise during the USDA’s Ag Outlook Forum, trend-line yields of 46.7 to 47 bushels per acre are also estimated.  Due to the increase of exports over recent years of soybeans out of South America, Joe Glauber describes soybeans as a “six-month crop”.  Meaning that the U.S. supplies the world with their soybean needs for six-months, then South America fills those demands for the other six-months.  With this wave of increased South American exports March 1st vs September 1st now seems to mark the new annual low in global soybean supplies. 

On the flipside of all of this negative news, Bill Kirk, a weather statistician and the owner of Weather Trends 360, contends that corn prices could hit the $6.50 to $7.00 range this summer.  At the Top Producer Seminar in Chicago he presented what factors he believes could take corn prices back to much higher levels. 

  • He believes that we will see a wet spring across a majority of the country which could delay planting all thanks to El Niño. 
  • A freeze in late May is likely.
  • He expects the current El Niño to dissipate and a La Niña to form which will bring very dry weather soon after the crop is planted causing drought stress in June and July. 
  • From June 26th until July 9th he expects an extreme heat-wave which could hurt pollination if it falls during this time-frame.
  • The forecast doesn’t improve, he expects a frost in late September and a frigid fall.

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