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Insight Focus
Corn rallied strongly in Chicago last week. Futures expiry may bring volatility, but US production remains steady while Europe faces weather-driven downgrades. Wheat lagged, with US prices up but Europe closing lower despite strong harvest progress.
The average price of Chicago corn for the 24/25 crop (September/August) closed at USD 4.37/bushel vs. USD 4.40/bushel at our last adjustment and vs. USD 4.55/bushel in our longer-term estimate. Our estimate for the 25/26 crop is still under evaluation, but the expectation is for corn prices to average around USD 4/bushel during the September 25/August 26 period.
A Friday short-covering rally left Chicago corn with strong weekly gains but was neutral in Euronext. Wheat rallied in the US but closed negative in Europe.
We have the expiry of September corn and wheat futures in Chicago next week, as well as wheat in Euronext, which should bring volatility to the front of the curve. Beyond the expiry, we believe corn may have found its low in both Chicago and Euronext, with risk now skewed to the upside.
Corn Rallies in Chicago, Europe Cuts Forecasts
Chicago corn opened last week pricing in Pro Farmer crop tour data, which estimated corn production at 16.2 billion bushels vs. 16.7 billion bushels in the latest WASDE.
Source: USDA
Prices traded lower through midweek, then rallied Thursday and especially Friday, posting strong weekly gains.
The rally was not only in the September future, which now has very low liquidity as it expires next week, but was also seen in the December future. It was most likely fuelled by speculative short covering. We will have to wait until Friday’s COT report to confirm this, but the large net spec short suggests this may have been the reason behind the rally.
In Europe, the MARS bulletin reduced its corn yield estimate to 6.93 tonne/ha vs. 7.18 tonne/ha in July due to persistent hot and dry weather. The European Commission also reduced its corn production forecast to 57.6 million tonnes vs. 60.1 million tonnes previously.
US corn conditions were 71% good or excellent, unchanged week-on-week, and vs. 65% last year. Argentinian corn is 97.2% harvested vs. 100% last year. French corn condition was 62% good or excellent, unchanged week-on-week and vs. 79% last year. Corn harvesting in Russia is 0.3% completed.
Global Wheat Harvests Advance, Prices Slip
On the wheat side, Chicago followed corn, but despite a rally in Euronext on Friday, it was not enough to offset earlier losses, and prices closed negative.
In Russia, IKAR increased its wheat production forecast to 86 million tonnes vs. 85.5 million tonnes previously, while SovEcon is forecasting 85.5 million tonnes.
US winter wheat is now fully harvested. US spring wheat is 53% harvested vs. 48% last year and vs. the five-year average of 54%. US spring wheat conditions were 49% good or excellent, down one point week-on-week and vs. 69% last year.
Russian wheat is 63.5% harvested. Ukrainian wheat is 98% harvested vs. 100% last year. Sowing of winter wheat in Russia has started and is 1.1% completed.
Weather Shifts Could Drive Further Corn Downgrades
On the weather front, the US Midwest is expected to turn colder and receive rains. Central-South Brazil is expected to remain dry with rising temperatures, while Argentina is expected to receive heavy rains again. Northwestern Europe is also expected to see rain, as well as southern regions, while the Black Sea region will remain warm with some scattered rain.
The rally in corn last Friday could trigger some selling this week, but the reality is that all the bearish news is already priced in, and we do not expect further upward revisions to US corn production. On the other hand, European corn fundamentals are supportive as hot and dry August weather has weighed on crops, and we think further downgrades in production estimates are likely.
