Last week US corn and wheat fundamentals received another bearish input as the USDA’s February WASDE reduced demand for each commodity which raised ending stocks. The ending stock increases corn and wheat were incremental, 10 mbu each, and do not alter our price objectives. We believe that the reduced export demand for US corn and wheat reinforces the challenges that each commodity faces in the global market while maintaining the fundamentally bearish narrative that is driving futures prices lower. Absent a global supply or demand shock, weakening US corn and wheat prices help export competitiveness which can help clear domestic stocks.
“Oversupplied” continues to be the word that defines the US and global corn balance sheet for MY 23/24. We continue to view the 2.17 bbu of US ending stocks inside of a market where global ending stocks are the third largest on record, 322.0 mmt, the US dollar is strong versus corn exporting currencies, domestic feed demand is stagnating, as persistent structural headwinds for US futures prices. These supply and demand challenges have reduced the urgency to own future US corn demand which continues to pressure futures values. At the close of trading on Friday, the prompt futures contract, March’24, closed at the lowest level since September 2021. We feel that the $4.30/bu price of the March’24 future contract price level is just outside of our $4.45-4.67/bu targeted range.
On the surface, the record-setting 93.0 mmt estimated export program for Argentina and Brazil, is reducing the imperativeness to own July’24 US corn demand which is evident in the 1.2 mmt of export sales for MY 24/25. This is the lowest in three years and right at the 5 year average. We feel that this metric can represent a potentially false sense of confidence by the global end user to procure US corn at lower prices later in the marketing year. We view the declining size of the Brazilian corn crop as reported by USDA and CONAB as a variable that can further corn exports and help US corn can find incremental export demand. Currently, July’24 FOB US corn from the gulf is trading – $7.00/mt against Brazil. The differential is not historically strong but if the Brazilian crop size keeps shrinking we would expect the premium structure to widen which should benefit US export sales.
US corn futures prices remain stuck in a fundamentally influenced downward trend. Despite the negative price action in the future market, thoughts about MY 24/25 planted acres, Brazil’s falling corn production estimates along with potential export delays in Argentina and Brazil present upside price risks. Implied volatility has been moving higher which supports our long-standing thesis about owning options. We see value in the May’24 440/475 call spread. We also reiterate our position of owning Chicago May’24 over the Kansas City May’24 contract.
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Contact Scott Strand
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