Rare is it when I am at a loss for words. In a world that is so interconnected by trade and commerce, the sting, shock, and awe of recent events is still numbing for many. Pinch me!! Surely this isn’t happening. “Shelter in place” and “social distancing” are words that we will now remember in infamy, similar to what “rationing” meant to Americans during World War II or “bomb shelter” meant during the Cold War.
Impacts on corn, soybeans
The price targets lower for May corn futures and May soybean futures that I wrote about last week were hit this week. Upon hitting those price targets, I figured corn and soybean futures might trade sideways for a couple weeks until we received fresh news from the USDA on the March 31 Planting Intentions Report and Quarterly Stocks report.
That notion lasted for all of 24 hours.
Then Goldman Sachs announced on March 17 that they would become sellers of corn futures. Their rationing was that ethanol demand would drop as ethanol margins were too thin due to the tremendous drop in energy prices and energy demand.
Just like that, corn basis across the Midwest widened. Corn futures plunged lower.
What’s next for corn futures
What I really want to draw your attention to is the next potential price drop for corn futures. Technical selling seems to be the name of the game in this uncertain environment. Remember Crude Oil Futures? $50 was a long term up trending support line that had held for nearly two decades. The washout fear selling hit crude oil pushing prices down to $30, and now today to $20!
With Goldman Sachs suggesting selling corn, if this current long term uptrend line is broken, the next downside target on the continuous front month chart points to (gulp!) $3. Should $3 fail, then the next potential target appears to be $2.25. (I wish you could see me stress rub my forehead as I actually put that number into print!)
The next question becomes how long does this sell-off last? My best estimate is until month end when the two week “please stay home” quarantine is hopefully lifted. End of month is also end of quarter for the economic world.
A comeback?
The next natural question is “When will corn prices come back higher?” I don’t know is the honest answer. These questions lead to the answer:
Will prices see a “V-Bottom” formation and skyrocket back up?
Will prices stay low for weeks on end until there is fresh sign of demand?
Will USDA reports even affect the price of grain or is the fear selling going to take front and center stage?
Honestly, it feels like step one is getting the virus under control, and until the world feels like we are over the virus spread hump, the path of least resistance for corn futures is likely lower. But I promise you this; at the first sign of a bottoming signal, I will sound the alarm!
