Corn market has potential to reach $6 level, analyst says

Will corn drag soybeans and wheat higher?

After a significant setback last week, corn has run back up to new highs this week, rallying over the $5.50 resistance areas and opening up the potential to rally over $6 before hitting any real resistance.  

That is a very bullish development, but the soybeans and wheat are not following corn’s lead.  

Both soybeans and wheat setback from recent highs (soybeans with a $1.18 drop in four days) but have not recovered as corn has. In fact, both wheat and soybeans now have significant overhead resistance that might be difficult to break.  

So will corn drag them higher anyway? Or will sagging soy/wheat prices pull corn back down? Typically, these markets go the same direction.

Weather forecasts continue to suggest adversity in Argentina, with below-normal precip and above-normal temps the next two weeks, which will add to stress there. However, there was mostly normal precip in Argentina in Janauary; this helped alleviate some of the stress there. Brazil will have mostly normal precip and below-normal temps, so good weather is forecast there the next two weeks. Overall, the SAM crops will be down in 2021 due to adverse weather (drought). But the question of the day is, how much will they be down? Most private firms expect USDA to reduce both corn and soybean crop production estimates in SAM in the Feb. report… How much they reduce it is a point of debate.   

Brazil is having trouble loading vessels with ships backing up in its ports. This typically has been a common appearance in Brazil – that’s why shippers prefer to ship from the U.S., where people actually show up for work most days.  

Some China sales could switch to U.S. sources due to the shipping bottleneck, particularly as the U.S. has the cheapest corn in the world.  A late Brazil harvest could also increase U.S. export demand.  

A cold blast of arctic air into the central U.S. this weekend and next week could cause some problems in winter wheat, although most is still in dormancy. Temps will drop to -10°F. to -20°F. or colder: chilling to say the least! The amount of damage to winter wheat in February is usually small, though, as the worst freeze damage typically occurs in late March or early April.  

World food prices are rising – for the eighth month in a row. The pandemic-related food shortages this spring may have been the most bullish thing to occur for agriculture in decades! This spring, 330 million American consumers realized what it was like to NOT have food products they wanted on grocery shelves. And so did food executives: Just-in-time inventory for food (a necessity for most humans about 3 times per day) might now be ancient history. This means we could use 120% to 130% of raw product in the 2021 year for many products (less stocks left over).

Price hikes made food prices the highest since July 14, led by price jumps in cereals, sugar, and vegetable oils world wide. Higher food prices are generally bad for government and its leaders, but good for agriculture. 

The trade thinks USDA will cut U.S. corn carryout to 1.392 in Feb. vs. 1.552 Jan., cut soys to 123 mb vs. 140 Jan., and wheat 834 mb vs. 836 Jan.  

World corn carryout should drop 4 mmt to 279.8 mmt, soybean 1 mmt to 83.3 mmt, and wheat 0.3 mmt to 312.8 mmt. Wheat is still plentiful, which is exactly where it’s priced. Yet, producers will cut wheat acres significantly due to low margins compared with corn/soys, and that will solve the wheat surplus problem by harvest. Trade expects a 0.5 mmt cut in Brazil corn to 108.5 mmt; Argentina cut 0.5 mmt to 47 mmt.  

The U.S. ag attaché cut Brazil’s corn estimate to 105 mmt. The trade expects Brazil’s soy crop cut 0.6 mmt to 132.4 mmt, and Argentina cut 0.4 mmt to 47.6 mmt. These cuts seem small compared with recent estimates floated around on the CBOT.  

Corn has run to new highs again, well above $5.50 resistance. Will it run dramatically higher from here now that it’s through resistance? Will soybeans and wheat follow, as they are both well below recent highs?  
That seems to be the question of the day. But one thing is certain: We will not go back to the horrible prices of the past six years anytime soon, as the grain fundamentals have obviously changed dramatically in the past year.    

Ray can be reached at raygrabanski@progressiveag.com.  
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Ray is president of Progressive Ag Marketing, Inc., a top-ranked marketing firm in the country.  See http://www.progressiveag.com for rankings and link to data from Top Producer Magazine and Agweb.com. 

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