The first quarter of 2018 has been a good one for corn, with values rising across both the cash and futures markets. Pricing has been strong for the front-month and intermediate-term contracts, with a few key benchmarks coming into play.
Here are the trading ranges thus far for 2018:
| Contract Month | High | Low |
|---|---|---|
| May | 395.25 | 353.75 |
| July | 402.75 | 362.00 |
| September | 407.00 | 369.75 |
| December | 412.00 | 379.75 |
Short-run demand has picked up in relation to the current market fundamentals. Subsequently, May corn (ZC) is in a position to threaten the $4 per bushel threshold in coming months. All in all, the market is off to a good start as we move into the Spring months.
Corn Futures News: Market Fundamentals
Robust economic conditions typically lead to an increased demand for beef products and promote higher corn prices. Approximately 35% of U.S. corn is used as livestock feed on an annual basis — a staple of aggregate demand. Amid the “Trump Rally” in the U.S. equities markets and a period of bolstered international economic growth, there’s more disposable income and desire for beef. Corn pricing has reflected this sentiment.
Aside from increased livestock feed commitments, several other corn futures news items are having a bullish impact on pricing. The early March USDA WASDE report has given corn players much food for thought. Here are the important takeaways from the report:
- Drought in Argentina has greatly reduced the projections for late-planted corn yields and export levels.
- Ethanol demand spiked during the months of January and February, raising export estimates for U.S. corn by 50 million bushels. Ethanol production statistics were based on the U.S. Energy Information Administration (EIA) weekly production reports for February.
- Producers in Brazil are storing crops and cutting production due to lower than expected prices. Soybeans are filling the gap in Brazilian production.
In U.S. corn futures news, late February estimates from the USDA show that corn and soybean planted acres will be equal at 90 million for 2018. This is turning out to be a point of contention among industry experts. Several high-profile investment firms predict that planted corn will come in 2 million acres below USDA estimates at 88 million — the lowest level in three years.
A Trade War on the Horizon?
The first quarter of 2018 has featured extensive talk over tariffs and a budding U.S. versus the world trade war. Statements coming out of the Trump administration have suggested increased tariffs on steel and aluminum imports. As a result, U.S. corn producers are questioning the future viability of many export destinations, specifically China.
Reports of new restrictions being placed on GMO corn imports by Chinese officials began hitting the newswires in early February. Subsequently, producers in the Ukraine are increasing exports to China and gaining a significant portion of the market share lost by U.S. exporters.
The timing for the regulatory move is curious at best. However, China’s demand for corn remains strong. Imports for January 2018 are valued at $80.28 million, up 250% year-over-year.
China’s regulatory environment facing imports is fluid and worth monitoring as the market year 2018/19 unfolds. Given last year’s lifting of the ban on U.S. beef, it will be interesting to see how the U.S./China corn trade develops.
The 2018 Outlook
It remains to be seen whether a full-blown trade war will heat up between the U.S. and China. Either way, global demand for corn remains strong. Reductions in South American output and heightened ethanol production will reinforce the need for corn. Coupled with a lag in U.S. planted acres, supplies are likely to remain limited and pricing firm.
If you’re a corn producer or an active futures trader interested in what the agricultural markets have to offer, contact the Daniels ag marketing team. Daniels has the expertise necessary to decipher the corn futures news of the day and help you make informed trading decisions.
