April 20, 2021
Commodity prices propelled even higher to start the week, with May corn futures topping $6 again Tuesday. Some farmers say it’s not just new crop seeing strength. Local elevators posting new-crop corn bids over $5, as well.
“Strong demand, tight old crop stocks, strong basis and fund buying have all contributed to this run higher in corn prices, says Chip Nellinger of Blue Reef Agri-Marketing. “Dry conditions in Brazil in their second crop corn production areas are an immediate bullish fundamental factor, as well.”
Matt Bennett of AgMarket.net also thinks weather is a dominant factor in this week’s markets.
“Dry weather in South America and the northern Plains in the U.S. has the market spooked,” Bennett says . “Given strong demand on exports and inspections, most feel confident the May USDA Supply and Demand report will be friendly.”
Tuesday wasn’t the first time May corn topped $6 this month. Last week, the contract topped the $6 mark, but then retreated back.
“Psychologically the market hasn’t seemed ready to get behind $6 corn,” Bennett adds. “However, basis levels and spreads have indicated the bull market is still very well intact.
So, it appears we’re going to get above $6 and possibly stay there until we get a better handle on the U.S. 2021 crop and the Safrinha crop.”
Why did prices top the significant $6 threshold again? Nellinger says it’s all about the spread action in prices.
“Strong cash basis levels have seen old-crop corn prices above $6 for a few weeks, this has slowly spurred some old-crop movement, which has been somewhat of a cap on price action recently,” Nellinger says . “There has also been a lot of spread trading activity between old-crop and new-crop corn, as well as corn/wheat and corn/bean spreading that’s affecting prices. But funds have been aggressive buyers and if that continues, old-crop futures will likely continue higher to upside technical targets well above 6 May/July futures.”
This week’s market action could be a preview of the dynamic market situation ahead for U.S. growers, especially as slight weather concerns are amplified due to tighter-than-normal stocks.
“With the tight old-crop stock situation, the markets will be highly attuned to even small weather problems and arguably are already building in some risk premium due to the dry conditions in the northern Plains,” Nellinger says . “This will likely spur some gut-wrenching volatility later this summer as the market reacts to every fresh weather model run. Remember volatility does not mean that prices just go up. Eventually, funds will want to take profits and if that is combined with ideal growing conditions and/or some outside market or geopolitical event, the market could see large moves lower."
“Weather will be watched like a hawk,” Bennett adds . “Given razor-thin carryout in soybeans and an extremely tight stocks-to-use in corn as well, we don’t have the luxury to see a crop failure. Any weather issues at all will cause extreme volatility."