In order to break out to the upside, December corn is fighting perhaps the most bearish fundamentals for 2020-21 that we have seen in more than three decades. New-crop December corn was dealt a bearish blow from last week's May WASDE, with projected ending stocks rising to a burdensome 3.3-plus billion bushels, and the largest since 1987-88. The burdensome supply scenario is apt to grow even more daunting, as ethanol production losses will surely mount further, along with the size of the carryout. A reduction in corn acreage from the May WASDE, will surely temper that supply bearishness.
There are two wild cards that could have a major influence in the resolution of this sideways corn trend: 1) the successful reopening of both the U.S. and world economies from COVID-19 lockdowns, and the potential surge in demand; 2) the appearance of China to return to buy more U.S. corn in accordance with the phase-one trade commitments.
July Soybean Oil:
Just as corn has suffered from the earlier plunge in crude oil (and palm oil markets), palm and soybean oil have also been pressured by the drop in demand from escalating lockdowns, lower biofuel usage and logistical issues in the past few months. bean oil was also pressured by managed money funds, as they exited the large net long that they had accumulated. The funds have finally reversed, and in fact, now hold a modest net-short in bean oil. Last Friday's nearly 3% rally in palm oil, and the steady rise in crude oil futures from recent lows, have underpinned the soybean oil market.
The July soybean oil chart illustrates two potential technically bullish patterns -- one a potential "double bottom" on July bean oil just above 25 cents, and the other an apparent "ascending triangle" pattern. Typically an upside breakout above the upper trend line is a bullish indicator
With the U.S. soybean balance sheet expected to tighten in 2020-21, according to WASDE, with a 405 million bushel (mb) ending stocks number, with the recent surge in Chinese buying of U.S. soybeans, and with near-record soy crush continuing, the soy complex has perhaps the most potential to surprise to the upside. That would certainly be realized should China honor its phase-one promises. That would of course also depend on the successful reopening of both U.S. and world economies -- a big IF right now.
It would also depend on the ability to sustain the recent crude oil price recovery from the depths of bearish prices in the past few months. Crude oil has recently been on a march higher, but could be running out of steam.
July Crude Oil:
July crude oil futures, which have rallied from its own double bottom near $17 per barrel, is on a $12-plus run to the upside. Fueled by the reopening surge in oil and gasoline usage, and the promised sharp reduction in crude production by OPEC Plus in early May, crude oil is on a tear.
The extent of the current rally will surely be dependent on June crude oil delivery results, and increased usage, but the recent rise in futures may have a warning sign in momentum indicators that appear to be nearing overdone. Some major resistance lies in the $33 to $35 per barrel area up from July's current $29.50 level that could stop this rise in its tracks.
The continued rise in crude oil, will surely help both corn and soybean oil to break out in a more bullish direction, but the recently sagging biofuels market has pressured both corn and bean oil, and certainly corn, unlike bean oil, has its own extremely bearish fundamentals, which could be hard to overcome without a weather issue this summer.
Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of commodities or commodity futures involves substantial risk and are not suitable for everyone.
Dana Mantini can be reached at Dana.Mantini@dtn.com
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