U.s. corn futures weekly price outlook brazil in focus see it market convert us dollars to australian dollars

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There were reports this week that farmers in central Mato Grosso, Brazil had begun planting their safrinha corn. However at this time safrinha corn planting is still in its initial stages (less than 10% planted) with Brazilian farmers very much in the midst of harvesting their 2016/17 soybean crop the millionaire. It’s worth noting that Brazil’s 2016/17 soybean crop is expected to be record large at 104 MMT (eclipsing the previous record high of 97.2 MMT from 2014/15).

Safrinha corn is planted AFTER the soybean harvest in central Brazil (Jan-Mar) lg washing machine codes. Additionally, safrinha corn production now accounts for approximately 65% of Brazil’s total crop-year corn production. Therefore as it relates to Brazil’s current 2016/17 total corn production forecast, which was estimated at 86.5 MMT in the USDA’s January WASDE report, approximately 56 to 58 MMT of that figure is expected to be safrinha corn.


Why is that important? It’s important for 2 main reasons:

• Current CME corn futures prices are reflecting the aforementioned 2016/17 Brazilian corn production forecast of 86.5 MMT, as well as, exports of 28 MMT versus production of just 67.0 MMT and exports of 15 MMT in 2015/16. However two-thirds of that production estimate is predicated on a crop that is just starting to be planted, which means it’s still susceptible to an entire growing season of yet unknown weather events exchange rate brl usd. Point being, there are a number of production uncertainties ahead for Brazil’s safrinha corn crop all of which could have a ripple effect on the U.S. corn market considering Brazil is now the 2 nd largest corn exporter in the world.

• Traditionally Brazilian farmers have looked to economize their input costs on their safrinha corn production (especially when forward domestic corn prices don’t justify the additional input investment, which is the present-case situation) binary tree. The result has often been more production volatility when weather conditions aren’t ideal. This certainly came into play in 2015/16 when safrinha corn production fell to as low as 40 to 41 MMT binary conversion. That said…there remain a number of moving parts going forward regarding just how big Brazil’s 2016/17 safrinha corn production will be.

What does this mean for current CME corn futures prices? At the moment…not much; however if the weather becomes an issue, specifically in Mato Grosso (which is the largest producing state of safrinha corn in Brazil), it should start to translate into more fundamental price support for corn futures going into the U.S. spring planting season, potentially leading to increased U.S. corn export business late in the 2016/17-marketing year.

KEY PRICING CONSIDERATIONS FOR MARCH CORN FUTURES (CH7) FOR THE WEEK ENDING 1/27/2017: March corn futures (CH7) closed on Friday (1/27) at $3.62 ½ finishing down 7 ¼-cents per bushel week-on-week.

• Technically March 2017 corn futures continued to find resistance at the upper end of the current trading range (approximately $3.70 CH7). The 200-day moving average held at $3.693 on a closing basis, which as I mentioned going home on Friday, 1/20…that would be the test for Corn Bulls this week regarding determining whether or not corn futures were actually serious about breaking-out to the upside. The answer thus far has been unequivocally “NO”…corn futures remain more “pretender” versus “contender” as far as Ag commodities poised for a meaningful rally are concerned exchange rate british pounds to us dollars. That said March corn futures have essentially been quarantined in a trading range from $3.35 to $3.70 since September 2016.

• The other price driver this week (that I would consider more of an outlier at the moment; however it could have major implications long-term) is the evolving and unpredictable trade relationships the U.S. is now entering into with Mexico and China with President Trump at the helm check messages online. Mexico has traditionally accounted for approximately 22 to 24% of total crop-year U.S. corn export business according to the U.S. Grains Council. Meanwhile China consistently buys approximately 1.0 billion bushels of U.S. soybeans annually premarket stock futures cnbc. Therefore both are two extremely vital/indispensable export destinations for U.S. corn and soybeans. Of the two, which one would I say holds more uncertainty? I would lean towards China for the sole reason that Brazil has the singular ability to displace a large percentage of U.S soybean export business with its sheer crop size of 104 MMT usd gbp. Argentina could also play a role in additional soybeans export displacement. Conversely when it comes to Mexico’s imports of U.S. corn, I’m not sure they have a reasonable origination alternative.

Overall, note the 5-year seasonal price action for March corn futures below. It’s not uncommon for corn futures to lag into the first 7-days of February before returning to a more price positive forward view. It’s also worth noting that Friday’s Commitment of Traders report showed the Managed Money position in corn pushing net LONG to 20,898 contracts (as of the market close on 1/24). This is the first net long money managers have carried in corn since 7/12/16 (8,702 contracts) euro chart. Corn Bulls…more patience is required.

Author hedges corn futures and may have a position at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.


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