Volatile US corn prices may take a breather but, not for long

After being particularly volatile lately, US corn prices may pause for a breather in the coming weeks but, weather uncertainties, concerns around the new crop corn yield, and the evolving global supply-demand scenarios are likely to keep markets unpredictable at least until the US’ new crop corn harvest in September-October, analysts said.

The corn futures prices on the Chicago Board of Trade have been roller-coasting lately. Prices hit an upper limit June 30 after the release of the US Department of Agriculture’s acreage survey report, which came out below expectations and then touched the lower limit post the July 4 holiday on forecasts for rains.

“Corn does nothing quietly above $5/bushel,” said Pete Meyer, head of grains and oilseed analytics at S&P Global Platts Analytics.

A glance at corn futures prices on the Chicago Board of Trade in the past few months shows the same, as corn futures have been very volatile after touching the $5/bushel mark.

“Volatility junkies have had their way of late, but now it feels like things are about to calm down until August’s first survey-based look at yields,” Meyer said in the latest Platts Analytics report.

Corn markets are very reactive to news right now because US corn inventories have tightened considerably in the past year. Any potential supply reductions this season from Brazil or the Northern US corn belt could have outsized ramifications for corn markets, said Sal Gilbertie, president of grain trading firm Teucrium.

“Markets will probably remain volatile through the autumn harvest,” he added.

Weather to rule

In the latest move, US corn prices pulled from their recent highs on news of rains and expectations of continued good weather across the central US corn belt, and the July futures contract on CBOT shed over $1/bu in the ten trading days leading to July 12.

The contract was trading at $6.25/bu on July 12, down from $7.5/bu on July 1.

After continued prolonged dryness and drought concerns, rains in the US offered respite to yield loss concerns and bullishness to corn prices.

Weather is likely to be the market driver in the near term, as the 2021-22 marketing year (September-August) corn is in critical growing stages currently. The planting for this crop began in April-May, while harvest will start in September-October.

Though rains have offered relief in major corn-growing areas, the impact of dryness remains to be seen in other parts. However, it has already stirred talks on the yield potential.

“This year, because of the severe drought conditions in the northern and western US corn belt, it seems unlikely that projections for trend line US corn yields can be maintained, which means the balance sheet will remain tight for at least another year,” said Gilbertie. “This could limit downside price action for US corn for some time,” he added.

The USDA will most likely offer updated yield numbers in its August World Agriculture Supply and Demand Estimates report. As of now, expectations are for a trend line yield in the US at 179.5 bushels/acre.

The US, the world’s largest corn-producing and exporting country, has witnessed plenty of weather troubles over the last two years and markets are cautious.

A derecho in US Midwest in August 2020 wiped off noteworthy corn acres, while inclement weather conditions in 2019-20 delayed corn harvests, while also affecting the quality of the crop. In 2020-21, the US corn crop output estimate saw an 11% fall from initial estimates to the latest numbers, and 2019-20 saw a similar drop of 9%, primarily led by weather disruptions.

Unpredictable supply-demand scenario

Corn stocks in the US are seen falling to multi-year lows of 1.357 billion bushels for the 2021-22 marketing year, while the consumption estimate in the country has grown steadily to 12.315 billion bushels, according to USDA.

The tightening supply scenario leaves little to no margin for error for corn output this year.

On the demand side, uncertainty emerged over China’s corn import prospects after USDA’s attache in Beijing cut China’s corn imports estimate for the 2021-22 marketing year to 20 million mt from the previous estimate of 26 million mt — also the official USDA estimate — citing higher domestic production and softening demand for US corn.

It will be interesting to see whether USDA follows the suit.

Meanwhile, on the supply side, serious concerns over Brazil’s corn output suggest that the US may cater to more markets with its corn.

Corn exports from Brazil in 2020-21 are seen falling to 29.5 million mt from 34.89 million mt last year, according to the country’s national agricultural agency CONAB.

Brazil’s 2020-21 corn production is estimated to fall to 93.38 million mt for 2020-21 from around 102 million mt produced last year, according to CONAB. Platts Analytics sees the number to be even lower–at 91 million mt.

Any news on Brazil’s corn production and import outlooks from major markets will also pave the path for the US corn price movement.

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Tags: corn, US, corn price, CBOT