CBOT weekly outlook: Corn could move below $3, analyst says

CBOT July 2020 corn with Bollinger (20,2) bands. (Barchart)

MarketsFarm — Corn futures at the Chicago Board of Trade have lost considerable ground over the past few months, but could move lower still if a weather premium fails to develop over the summer, according to an analyst.

The most active July corn contract has lost 20 per cent of its value since the beginning of January, finding some support in the $3.09-$3.10 per bushel area (all figures US$). Lost demand from the ethanol sector, due to the COVID-19 pandemic, accounted for much of the weakness.

“The fear is that the lost ethanol demand will create a bulge in not only old-crop ending stocks, but new-crop ending stocks,” said Sean Lusk of Walsh Trading in Chicago.

Corn prices could easily be down another 10 per cent as “the ethanol thing has been a major, major black eye for demand,” he added.

“Without ethanol and without increased export demand, you’re looking at record-high ending stocks,” said Lusk. He expected the deferred contracts would eventually be driven down below $3, with a possible target in the December contract at around $2.74 per bushel.

“People who have been in the trade a long time certainly remember trading corn in the twos back in the ’90s and early 2000s,” said Lusk.

Increased demand from China, as the country looks to bolster its own stockpiles, could provide some support and cover the lost ethanol demand.

Sabre-rattling on the trade front was detrimental, Lusk noted, especially as ample South American supplies will soon be available as well.

Spillover strength from wheat, as that market has seen some increased demand amid the pandemic, could also be supportive for corn.

However, “at the end of the day, if we don’t have a weather event, prices are in trouble,” said Lusk.

Forecasts for a possible La Nina weather patterns could bring hot and dry conditions to the Midwest over the summer. “If that happens, look out to the upside,” said Lusk, adding “funds will not stay short in a weather event.”

— Phil Franz-Warkentin reports for MarketsFarm from Winnipeg.

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