December 2012 corn futures prices have been range bound between $7.10/bu and $7.75/bu since mid-September. Despite trading in this range for more than two months, corn prices continue to be volatile and have moved to the ends of that range several times. Most recently, December corn prices gapped lower three weeks ago following the November World Agricultural Supply and Demand Estimates. At the time, technical selling, post-harvest pressure, and expectations for the Brazilian crop to be planted on time further softened prices. However, in the last two weeks, corn futures prices have regained nearly $0.30/bu of that loss, despite the late-week sell-off last Thursday and Friday. While there wasn’t one primary driver behind that rally, several factors have contributed to the recent strength in corn prices.
First, from a technical standpoint, the market had become quite oversold. As the price began to move slightly higher, additional technical signals pointed to higher prices, which spurred additional buying. For example, stochastics moved above 20%, and %K crossed %D from below as it moved out of the oversold zone, indicating a buy opportunity. Further, the relative strength index (RSI) bottomed out and began increasing, and moving averages began increasing. Eventually, the short term moving averaged crossed the long term moving average, also a buy signal.
Second, world production concerns have gained traction in the last several days. In early November, USDA estimated Argentine corn production at 28.0 mmt. Now, many analysts in the industry expect 2012/13 corn production to be 22-23 mmt for the crop. Much of that reduction was due to very wet conditions at planting time in October and early November that slowed planting. At this point, only 50% of the Agrentine corn crop has been planted, compared to 62% at this time last year. Brazilian corn production, estimated at 70 mmt by USDA in early November could also be lowered as dry conditions continue to stress the corn crop. Analysts expect Urkaine corn production to fall from USDA’s current projection of 21 mmt to about 18 mmt. Overall, world corn production is projected to more than 40 mmt lower than last year. And, despite U.S. exports being dismal thus far this marketing year, prospects appear to be improving for U.S. shipments as U.S. prices become more competitive on the world market.
The continuing U.S. drought is a third bullish factor supporting the corn market. While many input suppliers are encouraging producers to “plan for a normal year,” the drought remains entrenched across much of the Midwest. With an historically small ending stocks-to-use ratio for the 2012-2013 marketing year, pressure is building for the 2013-2014 production to provide some cushion to supplies. With an expected acreage increase to 97-98 million acres next year and near trendline yields, ending stocks would increase substantially. However, at this point, it would be hard to expect national corn yield to be near 165 bu/acre next year given the huge moisture deficit that appears will still be present at the beginning of the growing season. Certainly, a lot can and will change between now and the beginning of the 2013 growing season, but at this point, the market (and likely many farmers) are growing increasingly concerned about next year’s yield prospects.