March 2018 corn futures at the Chicago Board of Trade are rallying. But for how long is the question we want answered.
What are the charts telling us?
March 2018 corn futures posted a new contract low at $3.46 ½. In fact, this was the low for three consecutive days, after which a 2-day reversal materialized on December 19. This reversal pattern occurred at a market low, so it is an indication this market could turn up and possibly challenge resistance in the $3.57-3.60 area. The trend is still down, so I would not expect this downtrending market to turn around until it has a decisive close above $3.60.
What are the underlying fundamentals?
USDA is projecting 2017-18 U.S. corn ending stocks at 2.437 million bushels, down 50 million bushels from their November report on increased ethanol usage, but this is still 142 million bushels more than last year’s 2.295 billion bushel carryout.
2017-18 U.S. corn exports as of December 7 are reported at 345.6 million bushels, 37% below last year’s 548.4 million bushels and below the 4-year average of 403.8 million bushels.
2017-18 Canadian corn exports and domestic use are running 20% ahead of last year’s pace, with the biggest increase coming from 51% higher domestic feed use.
USDA estimates global corn ending stocks to be up from last month at 204.1 million tonnes, reflecting the increased production out of China, the EU, and Brazil. This more than offsets the decline in production projected for Egypt and Mexico.
What to look for?
Heading into the Christmas holiday season, I would look for trading volumes to be low, which could increase volatility. However, non-commercial or fund traders continue to own a near record short futures position in corn. Therefore, we could see a rebalancing occur, causing a short covering rally.
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