Corn traders likely set for more mixed price signals?

CHICAGO: Corn market traders have been receiving very mixed signals lately on which way the corn price is likely to head over the coming weeks.
On the one hand, steady corn futures prices combined with rising basis levels at the US Gulf support an upbeat outlook, and suggest the market may be poised to edge higher following a post-harvest dip. But market bears have been equally heartened by a continuing decline in interior basis levels throughout the country - even after harvest has wrapped up in many areas - that suggest prices could instead undergo a potentially steep slide in the weeks ahead.
EXPORT PACE
The bullish contingent in the corn market have been pleased to see the recent firming in US Gulf-area corn export basis levels to multi-month highs, and view that as a sign that global demand for US corn remains robust.
However, the recent pace of actual US export shipments tells a different story, persistently running at its slowest pace in more than five years in recent months.
This conflicting data can be somewhat reconciled by the argument that today's basis levels represent tomorrow's export sales intentions, and that an upturn in export shipments should follow on from the firmer tone in prices being seen lately.
But with US corn sales agreements (which precede actual export shipments) even further behind the pace than exports, that argument may need to be revised in the weeks ahead if sales don't pick up steam soon as well.
CORN MAY BE OVERPRICED
Decatur, Illinois is often viewed as the benchmark location for the US cash market, being that it is home to Archer Daniels Midland (ADM), the world's largest processor of corn, and located right at the heart of the Corn Belt.
And an important driving force behind this year's surge in corn prices to all-time highs was the fact that Decatur corn basis levels also scaled record levels around the same time, thereby giving credence to the notion that top consumers were genuinely concerned about not being able to gain access to sufficient corn supplies.
But recently Decatur corn basis levels fell to their lowest levels in more than a year, which for some market traders is ample reason predict that weakness is in store for the corn price as well.
The problem with this line of thinking is that corn basis levels always soften at this time of year as freshly cut corn makes its way into processor silos, and so the recent basis softness cannot be viewed as anything out of the ordinary or a sign of a market breakdown.
What may be noteworthy is whether the basis weakness in key markets such as Decatur persists even after harvest has fully wrapped up (still roughly 5 percent to go as of the most recent US department of agriculture update), as that would indicate a downturn in the urgency of processors to secure supplies.
Right now the corn futures price appears to be in a “wait and see” mode, hovering in a fairly tight trading band between $7 and $8 per bushel. If interior basis levels start to firm up again in response to steady domestic demand, then futures values will likely find additional price support and potentially nose higher again.
But if basis levels remain weak - or soften even further - then futures values will likely start to come lower. Basis levels in Decatur are already at their lowest levels since the first half of 2011 - when front-month corn futures were trading around $1 a bushel lower than current values.
Much depends on the tone of the USDA's upcoming monthly crop report which will provide updates on the extent of US supplies as well as domestic and global demand rates and stocks. If the USDA feels fit to downwardly revise the projected pace of US exports due to the recent anemic sales pace, then domestic processors will likely not feel too inclined to compete for supplies by raising basis levels.
But if domestic supplies are reduced further on the back of any additional cuts to this year's production estimates, then a new round of domestic and export buying could emerge that may support firmer basis levels all round.
This means that until the November 9 crop report is out of the way, and processors and exporters react to the latest USDA forecasts, corn market traders will likely continue to receive mixed signals on the basis front that keeps corn futures locked within its recent trading range.
— Gavin Maguire is a Reuters market analyst. The views expressed are his own. To get his real-time views on the market, please join the Global Ags Forum.