Fewer corn acres and the potential supply issues in Ukraine and Brazil

The corn market closed sharply higher yesterday and posted new contract highs for the third session in a row. Outside market forces, surging crude oil prices, and news from the Biden administration that it will increase ethanol usage this summer helped to support new buying. The administration plans to allow expanded sales of higher-ethanol gasoline, in an effort to lower fuel prices. This change, which applies on a temporary basis over the summer months, would waive anti-pollution restrictions that effectively block warm-weather sales of E15 gasoline in areas where smog is a problem. A senior administration official estimates the use of E15 could save motorists, on average, 10¢ a gallon. 

Ethanol inventories in the United States are expected to fall in the EIA’s weekly report. Analysts forecast that stocks will total anywhere from 25 million barrels to 25.8 million barrels, down from last week’s total 25.9 million barrels. Daily production could fall below 1 million barrels a day for the first time since early February; expectations range from 993,000 to 1.013 million barrels per day. 

Corn production losses in Ukraine could be significant, and traders remain a bit nervous about dry conditions in Brazil for the second-corn crop. Declining soil moisture during the last few weeks is a concern for much of central Brazil, as the dry season should begin soon.

The smaller-than-expected planted area for the U.S. opens the door for tightening supply and the need for a very high yield. But with record-high fertilizer prices, record yields might be asking too much. China’s corn planting is facing delays as lockdowns have left farmers stranded. China’s northeastern provinces have endured weeks of restrictions on movement, with the toughest measures in Jilin province where COVID-19 cases soared in early March. With the critical time for sowing grain fast approaching, some farmers remain stuck and are getting increasingly worried. 

MARKET IDEAS

There are still threats to production in Ukraine, Brazil, and the U.S., but the corn market is overbought. Technical indicators are extremely overbought, especially the December contract with an RSI above 83 and slow stochastic measures at 95 and 93. July Corn support is at $7.60 and $7.51, with $7.74-3/4 and $8.00-1/4 as resistance. There is no sign of a peak for December Corn, which saw contract highs for the fourth session in a row. 

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About the Author: Terry Roggensack, a founding principal of The Hightower Report, analyzes the livestock, grain and soft markets. Roggensack has over 30 years of experience in the commodity and financial futures industry. In the late 1980s, he briefly lived in London as acting director of a new London clearing firm. Prior to that, Roggensack was director of research at Stotler & Company.

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