This Week is a Demand Story

This morning, another round of flash sales gave the corn market a nice boost. The USDA reported sales of 169,926 metric tons to Mexico, 130,000 to South Korea, and 198,192 to unknown destinations, all for delivery in the 2024/2025 marketing year. That brings the total to 498,118 metric tons, reinforcing strong demand for U.S. corn as we push further into the marketing year.

Last week’s export report was impressive, hitting 2.225 million tonnes—well above trade estimates of 1.2 to 2.2 million. This set a new record for the week, beating the previous high of 1.923 million tonnes from 10 years ago, helped by 858,928 tonnes in overnight sales. Despite Brazil’s shipping advantage, U.S. corn remains competitively priced, and demand is holding strong.

USDA's export target is 2.325 billion bushels for the year, 6% above the five-year average. So far, we’re on track, with year-to-date sales also 6% higher. This week alone, sales were 254% above the norm, with the last four weeks averaging 21% higher. With this momentum, we’re leaning toward meeting or even exceeding USDA’s export expectations.

Narrowing polls are pointing to a tight race in this election, raising concerns about the possibility of another trade war if Trump gets back into office. Back in 2020, we saw China’s corn imports from the U.S. peak at 846 million bushels, thanks to trade deals and their domestic needs. But since then, it’s been a different story, with exports to China dropping steadily, hitting just 117 million bushels in 2023, which brings us back to pre-2020 levels. While China has been a big player in the past, our corn exports aren’t completely tied to that market—other buyers have stepped up to fill the gap. But if China does pull back as a buyer, similar to last year, we could be looking at a potential 100-125 million bushel hit to our export numbers.

The U.S. dollar continues to strengthen, climbing 0.17% to 103.63, building on last week’s gains of 0.55%. This rally is mostly due to U.S. economic data, including strong retail sales and a solid GDP outlook. Europe’s been struggling with slower growth, and their central bank is leaning toward keeping rates lower, which is pushing more strength into the dollar. As we get closer to the election, currency markets are feeling the weight of the uncertainty, and that’s something to keep in mind as it can impact export competitiveness for U.S. crops.

Trading Funds Add To Their Net Short, Harvest Moves Past The Halfway Mark

Friday’s Commitment of Traders report showed that trading funds added to their net short position, increasing by 63,000 contracts, bringing the total to -86,000 contracts. What’s interesting is that in the three weeks leading up to this, we saw short liquidation of 111,000 contracts, which nudged the market 8 cents higher. However, this fresh wave of shorts had a much bigger impact, pushing the market down by 19 cents.

Now that we're past the halfway mark on harvest and production potential for this crop seems to be pretty well priced in, we could start to see a shift in market sentiment. With the bulk of harvest pressure behind us and demand continuing to show strength, we'll see if we see a change in market sentiment.

Corn and Soybean Correlation

The rolling 30-day correlation between corn and soybeans has shown some divergence recently, primarily driven by differing demand stories in both markets. Corn has seen stronger export demand in recent weeks, while soybeans have faced varying factors like slower exports and fluctuating crush. However, it's important to acknowledge that, despite this divergence, these two markets remain interconnected, especially as we move into the final quarter of the year.

South American Weather Varied Last Week

Last week, rainfall across Brazil’s first-crop corn areas showed a noticeable slip, with actual precipitation falling below normal levels. As shown in the chart on the left, only 0.7 inches of rain was recorded, well below the 1.6 inches expected. This shortfall in rainfall could be a concern as planting continues in key production areas, but relief is on the way.

Rains will stick around in northern Brazil through early next week, with more moisture expected mid-week. Totals look solid with 2-3 inches in Goias and Minas Gerais, and up to 1.5 inches in Mato Grosso. The southern half of Brazil stays mostly dry. Argentina will remain dry until mid-next week, when rains hit the northwestern belt, bringing about 0.25-1 inch in Cordoba and southern Santa Fe, while the rest of the country stays dry.

Pricing:

December corn posted an outside day higher. Our first area of resistance will be the unreversed close at $4.15. Uncertainty around the 2024 election, trade wars, diverging soybean and corn fundamentals, and a bearish sentiment is keeping corn trading below economic value.

October brings another month of tightening ending stocks, with an optimistic export outlook and clearer production estimates suggesting we could see ending stocks dip just below 2.0 billion bushels. This shift points to a potential economic value closer to $4.60 on the December contract.

However, the market remains weighed down by a bearish sentiment. U.S. harvest pressures, seasonal trends, and Brazil's production potential, along with external factors like concerns over economic slowdowns and weakening demand, continue to keep the corn market under pressure.

Seasonals: As we look deeper into the seasonal trends for December corn, there’s a question of whether we might have already hit this year’s “October peak” earlier than expected.  2024’s price action has diverged from the typical seasonal pattern, with our “Summer peak” coming in 18 days prior to our typical peak made in mid May. While October is typically a stronger month for corn prices, the possibility that our October strength could be muted earlier this year could very well be the case as we move into the backend of the month.

Similar Year Studies: Suggest a high of 512, a fall low of 402, and an eventual ending price of 383. The actual high was 496 ¾, shifting the projected fall low to 390 and the final price to 371.

Corn basis in Central Illinois on October 4 came in at -38 cents per bushel, which is wider than the five-year average of -30 cents for this time of year, reflecting the heavy supplies on hand. Historically, in years like this with abundant supply, we tend to see basis improve by about 14 cents between early October and the end of February.