Corn Prices Advance to 7 Year Highs
Teucrium | January 15, 2021
Corn Prices Advance to 7 Year Highs
Will the Rally Continue?
Big Move Higher
Corn futures prices not only went straight up on Tuesday following the release of the USDA’s World Agricultural Supply and Demand report (WASDE) but the front three futures contracts closed up the 25 cent daily limit. The report showed a reduction of 325 million bushels of corn versus the December report. After adjusting demand related items, the net result is a corn carry-out[1] of 1.55 billion bushels. (View our WASDE Summary Balance Sheet Here)
Chart created by Teucrium using Bloomberg Finance LP on 01/14/2021.
Front month corn futures prices
Daily Price Chart 01/14/2016 – 01/14/2021
Past performance is not indicative of future results
This is the lowest corn carry-out since the 2014 – ’15 crop year. Corn supplies are dwindling due to increased global demand and production that is struggling to keep up.. The 2020 – ’21 crop year marks the second consecutive year where total usage has surpassed domestic production. US corn stocks are being drawn down to make up the difference.
US corn ending stocks exceeded 2 billion bushels between the 2016 – ’17 crop year through the 2018 – ’19 crop year. While the current USDA estimate shows ending stocks at 1.55 billion bushels, many private analysts are expecting somewhere between 1.15 and 1.25 billion bushels.[2]
While some are at odds over the exact number, the trend of lower corn supplies and higher prices is clear.
Will the Rally Continue?
Chart watchers are likely to see the current action as a bullish development. The price rally beginning in August of 2020 has continued largely unabated, taking out significant resistance levels along the way. Corn futures prices are of course still far off their all-time highs of $8.43 which was reached in August of 2012. Will corn prices get back to the $8 level? To answer that question, we will turn to an ag market sage Chip Flory. For those who listen to Chip on Agritalk[3], you have heard him say something to the effect that “…prices will keep moving higher until they don’t.” The not so common wisdom here is that it is very difficult to predict prices, especially the peak, and risk minded investors should be prepared to take the other side of a trade when conditions change.
The Fundamentals
The fundamentals appear to be in-place to support current prices. That said, in the near term, a rationing of demand, a larger than expected South American harvest or a surprise in regards to US planting intentions would likely put pressure on prices. Very importantly over the next few weeks, the trade’s attention will shift to the US as farmers reveal their planting intentions for 2021. Market participants will be watching closely to see if farmers will opt to plant more soybeans versus corn, a scenario that could provide an additional tail wind to corn prices. Looking out beyond the planting season, weather will once again be the ultimate variable. A drought is currently expanding through many key corn and wheat growing areas. While it is still early, if these dry conditions persist or worsen, one might expect a reduction in estimated crop yields.
For reference, the two drought monitor maps below show current conditions (chart 1) and last year’s conditions (chart 2). The growth in the area and severity of drought is concerning for the US farmer.
Chart 1
Chart 2
Never Underestimate American Farmer
A word of caution, never underestimate the American farmer. Powered by world class technology, grit and an old fashioned “get it done” attitude, US farmers have been helping feed the world for decades. High prices are more than enough incentive for producers to kick it into full gear.
We’ll see how it all plays out. Follow along with us here and on Twitter @Teucrium ETFs.
Teucrium Corn ETF: CORN
Options are available on the Teucrium CORN ETF. Please consult your broker or financial advisor.
[1] Carry-Out (also called Ending Stocks): The supply available at the end of the crop year, given the estimated or actual beginning stocks, production, and usage.
[2] ED&F Man Commentary January 13, 2021