So what would be the most likely reason to sustain a rally from current levels? It would likely need to be from a threat to the 2022 supply. That would include a threat to production among the major exporters of Argentina, Brazil, Ukraine and the United States. China is the world's largest consumer of corn, outside the United States, so a threat to its crop (it's the world's 2nd largest producer) would also be a threat. A threat to Chinese production would suggest increased imports in the year ahead. No imminent threat currently exists for production in any of the above five areas. So why are prices holding at current levels? First, the markets are managing supply and demand at an elevated level due to its current inflation mindset. Second, the market is worried that high crop input costs will a) shift global production away from corn, and/or b) lower yields due to lower use of inputs. Either way, it would be expected to reduce supply.
Whether that happens, or the scope to which it happens, won't be known for some months yet, which is why the market is lingering at current elevated levels - maintaining a risk premium.
The grain market turned back to the positive side this morning, despite headwinds from the U.S. dollar and the marketplace overall. The trade recognizes a hot cash market and good end-user margins into the end of the calendar year. The long-term December corn seasonal below shows a counter-seasonal rally over the past month – a similar late-season move to last year, starting to reverse what has historically been flat to lower O-N-D trade over the past decade. Corn contracts are off lows but still back to around level-par, with wheat still leading on a strong global outlook and soybeans higher as well. The market will continue to look for any evidence of Chinese buying.
