20.06.2023 – The price of corn has been running upwards again recently. The biggest drought in 30 years is jeopardizing the hitherto good harvest prospects in the USA. The U.S. Department of Agriculture (USDA) had actually forecast a record harvest of 15.3 billion bushels for this year. In recent years, many farmers have switched to varieties that tolerate drought better. Whether they will survive the current heat, however, is questionable. Now the market is looking hard at Brazil.
You can see the recent turnaround in the corn market well on the daily chart. You see corn from the U.S., specifically the July contract this year, which is traded on the Chicago Mercantile Exchange. The price is cents per bushel. A bushel of corn weighs 25.4 kilograms.
Source: Bernstein Bank GmbH
Newsweek magazine two weeks ago judged that an unusually dry May in the Midwest would likely drive up prices. The entire region from Texas to North Dakota and Ohio will be affected, it said.
Water shortages and declining quality
The blog “No Bull” just noted an unchanged situation, with about 57 percent of U.S. corn and 51 percent of U.S. soybean acreage in regions suffering from drought – up 12 percent week-over-week. The lack of water also affected grain quality, he said. For example, volume in the good/excellent category slipped 3 percentage points to 61 percent of volume versus 72 percent in the same period a year ago and to 69 percent of the long-term average. Only in 2019 had there been a worse figure of 59 percent.
Waiting for Safrinha
Now the news for the bears: however, “No Bull” questioned the extent to which the current harvest from Brazil could affect U.S. prices. In less than two weeks, the unofficial Brazilian export season for corn begins in July, he said. While U.S. shipments traditionally dominate the first half of the year, the second half belongs to the South American country, he said. The Safrinha variety is planted after soybeans, so it comes to market later in the year. According to “No Bull,” a record harvest is in the offing in Brazil. Indirectly, “No Bull” thus doubts the continuation of the small bull market.
Another price factor: The question of how much corn flows into the bio-diesel production will also be important. Traders should keep an eye on corresponding statements of the U.S. Environmental Protection Agency in the real-time news. And of course the weather forecast for the growing areas in the U.S. – as soon as heavy rain falls, prices are likely to fall. Whether long or short – Bernstein Bank wishes successful trades and investments!
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