Despite funds holding a near-record net short position in corn and the market being heavily oversold, corn futures continue to bleed lower. The corn market desperately needs a catalyst to spark an overdue and extended price recovery.
The most likely catalyst in our opinion would be further deterioration of Brazil’s safrinha corn crop. While the safrinha crop accounts for about three-quarters of Brazil’s total corn production, strong exports from last year’s record crop allowed traders to ignore this year’s situation.
As we previously noted, there are similarities to 2016. A strong El Niño at the start of Brazil’s 2016 growing season led to a season of erratic weather, ultimately resulting in dry weather torching the safrinha corn crop, sending both U.S. corn and beans sharply higher following bottoms in March.
Reduced Brazilian corn production would boost demand for U.S. corn. In the past 10 years, USDA has increased its U.S. corn export forecast after February eight times by an average of 173 million bushels. In the three years Conab cut Brazil’s corn production from its February estimate, USDA raised exports after February by an average of 260 million bushels.
We already believe USDA is too low with its 2023-24 U.S. corn export forecast — and there’s potential for an even greater increase if Brazil’s crop shrinks.
