March 19, 2020 / 10:47 AM / 11 days ago

Column: Virus fallout pushes CBOT corn to 14-year March lows

FORT COLLINS, Colo. (Reuters) - Chicago-traded corn has been crippled in recent days under the weight of crashing outside markets, with prices hitting the lowest March levels since 2006. Futures are now heavily oversold, but that does not mean an immediate rebound is guaranteed.

Corn rests on the ground on Hodgen Farm in Roachdale, Indiana, U.S. October 29, 2019. REUTERS/Bryan Woolston/File Photo

Most-active corn futures on Wednesday hit their lowest levels since Sept. 30, 2016, and the contract finished at $3.35-1/4 per bushel, down nearly 14% since the start of the year. Within the last three decades, only 2009 and 2010 featured comparable losses in the first months of the year.

Corn exports from the United States, the world’s leading supplier, have been extremely slow in recent months and competitors Brazil and Argentina are expecting to harvest record or near-record crops very soon.

Fears for corn demand have recently been accelerated by a demand-driven plunge in oil prices, which could reduce ethanol needs. U.S. crude oil futures hit an 18-year low on Wednesday, and ethanol production accounts for about 39% of U.S. corn usage.

On Wednesday, corn’s relative strength index, a technical indicator of whether a stock is overbought or oversold, fell below 24 for the first time since July 2014. Values below 30 are considered oversold and those above 70 are overbought.

Usually a contract does not like to spend much time outside of that range, and such anomalies are often precursors to rallies or declines, but the timing is not guaranteed. Corn futures spent nearly all of July 2014 in oversold territory before climbing out in early August.

Speculators may have set a weekly record with their extreme corn selling in recent days. The latest data from the U.S. Commodity Futures Trading Commission (CFTC) showed that as of March 10, money managers held a modest net short position in corn of 60,370 futures and options contracts.

Trade estimates suggest that commodity funds sold just over 100,000 corn futures contracts through Tuesday, the next data period for which CFTC will publish data on Friday. The weekly record is 103,683 futures and options contracts set on March 14, 2017.

Wednesday’s estimates pegged fund selling at 33,000 contracts, which would put the corn short right around 200,000 contracts heading into Thursday. That would be the most bearish stance since early May 2019, just as the disastrous U.S. planting season was beginning.

But that is far from the record short of 322,215 contracts from last April, and there are 24 other weeks in records back to 2006 where the managed money corn short exceeded 200,000.

A huge, sudden selloff does not always guarantee a large buyback, but some of funds’ biggest corn buying weeks came within two to six months after the top selling weeks.

The coronavirus pandemic has caused a collapse in global markets comparable to ones in 2008 and 1987, since the virus has shut down economic activity on a massive scale. In the 10 trading days ended Wednesday, the S&P 500, the benchmark U.S. stock index, had tumbled 23%. Aside from the 1929 crash, only periods in 2008 and 1987 have featured larger downward moves on a short timescale.

Commodity markets do not usually fare well when outside markets tank and corn is no exception. But the 2008 and 1987 examples are not very helpful indicators for corn because the causes and circumstances of those events were different from those today. In the last couple of months, corn futures have been on par with or slightly elevated compared with recent previous years.

In 2008, corn futures were sky-high prior to the October crash and had reached an all-time high of nearly $8 per bushel in June. The contract was near $5.60 when the global fallout began, and prices did not return to that level until exactly two years later.

But there are very few past situations, market crash or not, that can be used to inform on corn futures today because of how much the corn market has transformed in recent years. The biggest difference now is that security in world corn supply no longer rides so heavily on the United States, particularly with the rise of South America, a fact that many analysts are still getting used to.

The opinions expressed here are those of the author, a market analyst for Reuters.

Editing by Richard Pullin

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