Corn futures prices on the Chicago Board Trade, which gained nearly 50% since the beginning of 2021, are likely to maintain the upward trend in the near-term, owing to weather issues with the top two producers -- Brazil and the US -- and higher demand from China.
Weather concerns have impacted Brazilian corn growers for a while now, and growing distress chatters around dry weather in parts of the US have boosted bullish sentiments in the market, analysts said.
Strong US corn export inspections are providing additional support to prices. The US sold 1.36 million mt of corn to China for the 2021-22 marketing year (September-August), along with 188,468 mt to unknown destinations, data from the US Department of Agriculture showed May 7.
Fresh sales amid low production concerns pushed the most active CBOT July corn futures contract to a nine-year high of $7.35/bu on May 7. The contract, however, shed some gains later and opened at $7.26/bu on May 10.
Corn prices have remained firm throughout the last one year, mostly due to robust demand. However, the market is now making a gradual and natural shift to supply-side concerns as producers are in between seasons everywhere for corn, analysts said, adding the Northern Hemisphere isn't yet planted and the Brazilian Safrinha crop is just maturing.
Weather concerns amid shrinking supplies
Weather around the world will be the main determinant of future grain prices going forward, said Sal Gilbertie, president of grain trading firm Teucrium.
"The US needs perfect planting and growing weather for the next four or five months, and Brazil needs rain right now," he added.
The Brazilian safrinha crop was planted late so pollination is a concern due to current hot dry weather conditions. S&P Global Platts Analytics sees corn production in Brazil in 2020-21 falling to 102 million mt, around 7 million mt lower than USDA's current estimates.
For the US, the drought monitor's seasonal outlook shows persistent dryness over most of the US northern plains through July. About 26% of corn production in the US falls in an area experiencing drought, USDA said in its latest report.
While some areas of the Northern Plains remain dry, dryness concerns have eased for major growing areas after beneficial rains fell on the weekend of May 8-9, Pete Meyer, head of grains and oilseed analytics at Platts Analytics said.
Following previous season's weather disruptions and production estimates that came out lower than what was earlier expected, corn stocks are shrinking to uncomfortable levels, setting up a trajectory for price firmness.
For the 2020-21 marketing year, the USDA sees US corn ending stocks estimate at 1.352 billion bushels, the lowest after 2013. Global corn stocks in 2020-21 are also seen falling to 283.85 million mt, from 302.9 million mt seen last year.
"Corn demand was so high from China this year that a bumper corn crop is needed everywhere where corn is grown, just to keep the global corn balance sheet from shrinking further," said Gilbertie of Teucrium.
Way forward for corn prices
"Path of least resistance in old corn crop remains higher and we continue to expect the market to be supported until probably mid-June when planting is complete in the US and farmers start to sell," Platts Analytics said.
Prices of corn are likely to be supported on the shrinking stocks situation. Meanwhile, markets will continue to keep a close watch on weather developments in the US and Brazil, according to analysts.
"Prices will react to weather conditions from now until Northern Hemisphere's autumn harvest, when there is traditionally a seasonal dip in prices due to harvest supplies coming to market, but everything will be dependent upon weather conditions until then," Gilbertie said.
"If it does not rain soon in Brazil, and the US, the global corn crop will be threatened, which means any significant price declines could likely be limited for quite some time," he added.
However, US corn acres will also be watched as corn planting is ongoing in the US and it is likely that the higher prices send more acres towards corn's way, Meyer said. "Basically, the higher the prices go, the more acres we are going to see in that acreage report at the end of June," he said.
Markets will also watch out for the risk of funds unwinding their positions on the CBOT. "Given the size of fund length in the corn market, bullish speculators will be watching the market closely for any signs of weakness as planting continues in the US and dryness concerns ease," Meyer said.
China's purchases are also going to give direction to global corn prices. For 2020-21, China's corn purchases have been pegged at 28 million mt by USDA's Beijing attache -- record high by a wide margin.
