Corn Prices Vulnerable to Record Spec Long

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Forecast 

There are no changes to our 2020/21 (Sep/Oct) average price forecast in the range of 4.2 to 4.6 USD/bu for Chicago Corn. The average price since the beginning of the crop (Sep/Aug) is running at 4.43 USD/bu.

Market Commentary – Corn 

Lack of fundamental news and fears of inflation reducing monetary stimulus left grains with different behaviors across different geographies. Corn was higher in Chicago and Brazil while slightly negative in Europe. Wheat was flat in Chicago and positive in Europe.

We had two days of a macro sell off with increasing bond yields and valuation of the dollar. Signs of inflation returning sparked fears the extra lose monetary policies across all geographies may end sooner than expected.

Almost all commodities including grains are holding record levels of investments funds on the long side: all spec, index and hedge funds. This leaves
commodities vulnerable to a correction if spec funds decide to exit.  

On top of that we also had low demand for US Corn with export sales lower than expected.

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The IGC (International Grains Council) increased their global Corn production forecast by 1m tonnes to 1,134m tonnes and increased consumption by 2m tonnes to 1,163m tonnes with the consequent stock destruction of 29m tonnes. The USDA is projecting a stock draw of 16.5m tonnes.

In Brazil, the soybean harvest is 15.5% completed compared to 33% last year which will continue to delay safrinha (second corn crop) planting.

Market Commentary – Wheat 

On the wheat front, French Wheat condition is at a four year high with 87% good to excellent against 64% last year.

US exports sales were below expectations.

The European Commission forecasted their 20/21 production at 117.1m tonnes or 669k tonnes higher.

The IGC increased their global Wheat production forecast by 6m tonnes to 773m tonnes with consumption higher by 3m tonnes to 756m tonnes, with the consequent stock build of 17m tonnes which is much bigger than USDA’s stock build of just 4m tonnes, which could even be lower when they assess potential losses from the cold storm in the US.

At least the EU MARS bulletin said freezing temperatures in Europe during January and early February had a limited impact to Wheat but they didn’t put a number to that small damage.

Final Thoughts  

The fundamental picture for grains remains supportive with Corn and Soybeans destroying stocks through the year and Wheat basically breaking even. The biggest vulnerability in the market is the length of spec funds. We should see further consolidation as the high price environment is justified.

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Alberto Carmona

Graduated at the University of Seville (Spain) and University of Paderborn (Germany) with a Bachelor in Economics and Business Administration and an Executive MBA from Institute San Telmo (partner school of IESE). Worked in Abengoa Bioenergy from 1999 through 2017 when I founded NixAl Commodities, an Ethanol boutique focused on market intelligence, risk management and engineering. Professional background in financial and commercial activities, promoting and financing renewable energy projects in Europe, Brownfields and Greenfields. I have been active in the international development of Bioethanol since 2001 having lived and worked in The Netherlands, Brazil and U.S., the three main markets, while leading global trading operations, risk management and lobbying.

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