US corn futures prices rally, but rise likely limited: analysts

New Delhi — US corn future prices continued to rally in the overnight session Aug. 30-31 as markets reacted to lower yield expectations, growing demand from China and funds changing their positions, but analysts see limited upside.

The most-active corn contract traded on the Chicago Board of Trade rose 1.2% from a previous close, hitting a session high of $3.64 a bushel on Aug. 31, 4:50 am CT (0950 GMT), and going past the high seen in July. The overnight session runs from 7:00 pm through 7:45 am of the next day.

US corn prices have rallied 5.6% in the week ended Aug. 28 alone to hit $3.60/bu, as concerns rose around the double impact of drought and a derecho storm on the crops in Midwest, especially Iowa, with experts expecting lower yields for corn.

Iowa is the largest corn-producing state in the US, with National Agricultural Statistics Service estimating 2020-21 production at around 69 million mt. NASS is an agency of the US Department of Agriculture.

Pending more abandonment reports, S&P Global Platts Analytics said it estimated Iowa corn production at 2.534 billion bushels, or 64.4 million mt, lower than NASS' August estimate.

As of Aug. 25, about 70% of the corn crop in Iowa is in drought-affected areas, with 37% of the crop falling in areas hit by severe or extreme drought, according to the USDA.

With some crop in Nebraska also seen drier side, this takes 25% of total US corn production falling with an area experience drought.

Dryness is expected to persist in Iowa, with below-normal rainfall seen in the state during the week ending Sept. 4, according to weather agency Maxar.

Fears of crop loss have also grown after a derecho swept through parts of Iowa earlier in August, affecting more than 10 million acres of both corn and soybeans, according to initial estimates.

However, the derecho was a minor event, while drought is a much bigger concern, said Pete Meyer, head of grains and oilseeds at Platts Analytics.

US farmers were reluctant to sell corn in the midst of the price rally, with markets in wait-and-see mode as they expect an up to 3-percentage-point drop in the crop ratings to be released Aug. 31, a source said.

Corn crop ratings dropped sharply in the week to Aug. 23, with 64% of planted corn seen in good to excellent condition, down five percentage points from a week earlier.

Rally seen capped

The corn rally is still production-based, and is not expected to last long term, Meyer added.

"[Corn] might trade up to $3.70[/bu] or so before the September WASDE [to be released Sept. 11], but then back down to the $3.40 area until clarification on the size of the crop sometime in 2021," Meyer said.

Some analysts have maintained key resistant levels at $3.60-$3.65/bu, with one source saying maximum pain for technicals is at around this level.

Managed funds also liquidated their short positions in the week to Aug. 25, helping the corn price rally in the process, data from the US Commodity Futures Trading Commission showed.

Eyes on China sales

China has been also seen buying US corn aggressively in recent weeks, as they look to meet the Phase 1 deal targets and meet domestic demand which has been hit by tight supply, according to sources.

In the current marketing year, the US has exported 1.78 million mt of corn to China as of Aug. 20, the highest in the last five marketing seasons, according to an analysis of the USDA data. The US corn marketing year starts Sept. 1.

China's commitments to US corn in the new marketing year are also at a record high of 6.4 million mt, while at this point in time there were no new crop commitments for the last four marketing seasons, the data showed.

China has been also actively looking to buy corn to restock its government reserves as stocks have been depleted by sold-out corn auctions due to growing domestic demand, according to sources.

However, the Chinese demand and expectations of a low mostly priced in the recent rally, according to an analyst.