Markets unPACKed: Corn Rollercoaster!

Corn Rollercoaster!

Remember that feeling as a kid when you are climbing…climbing…climbing that exciting rollercoaster that you are finally tall enough to ride? It’s a hot spring day with summer break almost here, ice cream on your face, and now finally buckled into the ‘Kingda Ka’ coaster, eyes squeezed shut on the climb, as fear starts to grip you! You’re slowly chugging up the first hill and right as you open your eyes everything is still; it’s too quiet…your vision goes blurry. Then someone starts screaming! Hands shoot into the air. You know the plunge is coming. Then… swoooossshhh! You DROP! You scream! You can’t see anything!

And then, it’s calm. You realize you have been holding your breath. You look over to see your siblings, who are alive and equally as shocked! It stays flat for a while, and you look around to see the world is still there…but then the next climb begins.

That is the corn market of the week of May 24. All you need to know.

Just kidding.

Last week corn was on a wild ride without any true clarity as to why. Just to demonstrate what a crazy ride it was, here is the 5-day candlestick chart of July futures:

 

 

On the 25th of May, we watched corn trade limit down, and on the 26th of May, we watched corn trade limit up.

The reasons to this price action in the fundamentals circulated around rumors that China canceled front-month grain purchases. Now, you may be rationally wondering why some canceled export sales would cause the market to completely sell off; you are on the right track. It was an irrational response to rumor. One must remember that U.S. corn exports to China have been the largest of the season in the last two weeks and the greatest spike in sales we have ever seen since 2010. One of my favorite writers, Reuters’ Karen Braun, posted this chart to demonstrate the significance of this demand from China.

 

 

So, while a bit dramatic, it is fair to say that current prices are thanks to this demand. We ended the week down slightly, and attribute that to lighter volumes as people head out for the holiday weekend. As of this writing, the morning of Tuesday, June 1, corn is up 20 cents on concerned dry weather forecasts as this is the time of year that weather determines the markets. Nonetheless, it will be interesting to watch export sales and see if this demand market continues or we finally shift into the standard weather/supply market we typically see in the summer months.

 

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