Corn closed $0.04 higher today, the first positive day since the Monday before Christmas. Most of the rally is attributed to fund movement. Monday this week saw significant losses in all commodities after as Chinese stock market drop the night before. On Sunday night, Chinese manufacturing data came in bearish at the same time as a major devaluation of the Chinese Yuan from the government. The Chinese stock market dropped the limit on Sunday night forcing shut down and again later in the week. This weighed heavily on commodity prices this week so the rally today is welcome.
The main force working against U.S. commodity prices is the strong value of the dollar relative to other world currencies. The U.S. commodities are expensive and have resulted in exports for corn being 25% behind last year and 19% below the USDA estimates in the December supply and demand report. The next major mover and shaker in the markets will be the January supply and demand and stocks and acreage reports. Trade is currently debating numbers for export changes, South America production, feed usage, and prevent plant acreage usage. The overarching story remains the same however, world supply is plentiful for all commodities and this will only change if there is a major event that has drastic impacts on this year’s production (weather is usually the culprit).
On a positive note, we often forget that world demand for corn and wheat continues to increase every year. Depressed prices draw more consumers and end-users that increase demand further. If demand makes some major increases, then prices go up. This is economics 101.