Corn rallied over the past several weeks spurred by short covering before the holidays and remains bullish in what traders are calling a seasonal tendency. Corn futures have a strong tendency to rally from the beginning of December through late winter and sometimes into spring and early summer. The large amount if corn in storage and the need to remain competitive in the world market will limit rallies in the cash market as buyers adjust basis. Basis values have already weakened $0.05 across the U.S. as year-end movement has increased.
Net farm income is forecasted to be down 38% from last year which will obviously impact farm spending. Machinery and implement dealers will likely be the first to feel this impact with crops and crop inputs feeling the pressure. As prices remain depressed, more producers are sharpening their pencils and spending time and effort calculating break-evens in order to try to remain profitable. Sometimes another $50/acre in input cost could raise yield enough to bring break-evens above current prices.
The final USDA Supply and Demand report was released on Wednesday the 9th. Corn export estimates were decreased 50 million bushels and ethanol use was increased 25 million bushels in the wake of EPA’s increase in ethanol blending levels in gasoline. Overall, the report was quiet with year-end corn carryout was increased 25 million bushels.
There is currently no heavy news in the wheat market to spur a rally. The USDA raised the wheat carryout number on the supply and demand report on Wednesday. It will take a while to eat through these stocks and the wheat prices may not see a recovery any time soon. The major factor in crop production is weather. The strong El Nino over the past year resulted in no weather concerns for wheat anywhere in the world. The question in the following year will be whether the El Nino will transition into a La Nina, causing a drought year, or if it will continue and cause another year of record yields.