• China to increase its acreage next season.
  • Brazil and Argentina expect a reduced harvest.
  • US reports show corn acreage reduced last year.

Corn futures rallied Tuesday, following an announcement by the Environmental Protection Agency (EPA) that it would not exempt oil refineries from adhering to biofuel blending regulations. Corn prices continue to surge, with China’s demand, reduced harvest in South America, and the US market forces fueling the rally.

Chinese market influence

The current corn futures have benefitted from China’s record imports, which are expected to reach 22 million MT by the end of the 2020/21 season. The soaring corn prices were helped by a high demand, which resulted in a near-depletion of the nation’s corn reserves. 

Meanwhile, the country’s agriculture minister announced that the acreage under corn would be increased in 2021. This is expected to significantly reduce the shortfall experienced in the past year. This may result in reduced demand and lower prices later in the year.

Corn prices are also facing an imminent reversal in gains following a recent spike in coronavirus cases. This has already resulted in the re-introduction of lockdowns and travel restrictions for more than 29 million people. Such measures are expected to lower corn consumption.

US output

The prevailing corn prices are also attributable to a significant reduction in US corn acreage, which may have helped avoid a market glut. 

The latest data by the United States Department of Agriculture (USDA) shows that about 90 million acres of corn were planted in 2020. This is a reduction by nearly 900,000 compared to 2019. This means that an additional acreage of nearly 1 million acres could be planted in the spring, prompted by a profitable 2020/21 season. That would result in increased supply, thus lowering prices.

However, it’s not all gloom for corn prices heading into the next harvest. The latest data by the U.S. Department of Agriculture data shows that domestic corn stocks-to-use for 2020-21 is 10.6%. Such a tight inventory reduces the prospect of a plentiful 2021-2022 season.

South American supply disruptions

Sub-optimal weather has led to reduced yields in Brazil. Dry conditions delayed the planting of corn, with the biggest impact befalling the country’s most productive mid-south region. This has led to a significant reduction in harvest for the 2020/21 season.

The situation is worse for farmers who planted earlier in the season, with production shortfalls of up to 45% being reported. 

Reduced harvest has occasioned the Brazilian government to issue a tax exemption on corn imports, which will be in force until the end of March 2021. The measure is aimed at protecting the nation’s food security but will certainly be felt in the global market.

On its part, Argentina, the world’s third-largest corn exporter, recently imposed a ban on corn exports up to the end of February. The country’s corn harvest is projected to reduce significantly due to dry weather. An imminent shortfall in South American supply to the global export market will further fuel a price spike at least until the next harvest.

Technical analysis

The current price rally has crossed the Corn Exponential Moving Average (EMA 10 and EMA 20), signaling a strong buy. On the other hand, at 82.69, the Relative Strength Index (RSI-14) is indicative of an overbought commodity. 

 A price oscillation above the 528.44 support level will likely keep the momentum heading towards 540.00. However, a slip below 526.94 should signal an imminent move below 525.00.

Corn Futures chart - Technical analysis