Todd's Take

A Bearish Turn in Corn

Todd Hultman
By  Todd Hultman , DTN Lead Analyst
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Earlier in February, DTN's Corn Index reached $3.52, its highest level in eight months, boosted by a strong showing of U.S. exports early in 2018-19. By the end of month, prices had fallen to $3.38 with concerns of big crops on the way from Brazil and Argentina. (DTN ProphetX chart)

Sometimes it's surprising how quick a market's mood can change from bullish to troubled. In the case of corn, that change happened in February as DTN's Corn Index reached an eight-month high on Feb. 6 and finished the month at $3.38 on Thursday, near its lowest prices in three months.

It wasn't that long ago when we were talking about hot and dry conditions in south-central Brazil. The adverse weather had brought down crop estimates for Brazil's soybeans late in the growing season. It was fair to wonder at the time if Brazil's safrinha corn crop was going to be planted in hot and dry soils after the soybean harvest finished.

However, in late January, DTN Senior Ag Meteorologist Bryce Anderson pointed out changes in the weather pattern that allowed more rain to come to Brazil's crop areas. For Brazil's second corn crop, the timing couldn't have been better, and now both Brazil and Argentina are anticipating large corn harvests in early 2019. This means more competition for U.S. corn in the months ahead.

While the forecasts were turning more crop-friendly down south, winter wheat prices sprung their own bearish surprise, falling to new lows around Valentine's Day. Disappointed with a chronic lack of U.S. exports in 2018-19, traders that had previously offered buying support for wheat disappeared and noncommercial sellers knocked a quick 50 cents off prices by the end of the month. The prospects of having to compete with cheaper wheat prices also weighed on corn.

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If those two bearish hits were not enough, USDA also weighed in with an early forecast of 92.0 million acres (ma) of corn plantings at this year's annual Agricultural Outlook Forum, up from 89.1 ma in 2018. The estimate of U.S. ending corn stocks was slightly lower, at 1.65 billion bushels (bb), but that could go higher with a good weather scenario in 2019.

Put it all together and we see a corn market that has lost some bullish starch in late February. If I were a speculator wanting to short the corn market (which I am not), I would not be eager to jump the gun on corn and certainly not at the low price of $3.38 a bushel.

First of all, it is still extremely early in the new crop season and there is plenty we do not yet know about conditions in 2019. Yes, South America's crops are looking good and that is one bearish factor. Here in the U.S., we can't say drought is an early concern in the Corn Belt, but we can certainly see plenty of potential problems related to too much moisture, and some areas are already dealing with flooding.

Just this week, Anderson blogged, "Significant Spring 2019 Flood Threat" (https://www.dtnpf.com/…) and DTN Basis Analyst Mary Kennedy posted, "Flooding Slowing Traffic on U.S. Rivers..." (https://www.dtnpf.com/…) -- two articles that describe the unusual wet conditions that the Midwest finds itself in at the start of March.

If producers somehow survive a lingering winter and wet early conditions -- and succeed in getting 92.0 ma of corn planted in a timely basis -- then the bears in corn might have a good argument to make in 2019. But for now, as of early March, there is still a pretty good chance that the uncertainty of this year's wet start should at least offer support and may even give corn prices a chance to trade higher before the bullish seasonal tendency expires in early June.

It is not an easy call, and once again weather is the key component that we'll all be watching, as well as any new surprises that might emerge.

Todd Hultman can be reached at Todd.Hultman@dtn.com

Follow him on Twitter @ToddHultman

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Todd Hultman