COLUMN-CBOT corn rally more than justified by US supply cuts: Braun

By Karen Braun

NAPERVILLE, Illinois, April 10 (Reuters) - Chicago corn futures have shot nearly 5% higher so far this week despite gratuitous geopolitical uncertainties, especially when it comes to the United States and its foreign grain customers.

But based on Thursday’s supply and demand update from the U.S. government, an argument could be made for nearby CBOT corn futures to strengthen even further.

Robust demand, particularly for exports, has driven U.S. corn supply estimates well below initial projections. The U.S. Department of Agriculture on Thursday reduced 2024-25 corn ending stocks to 1.465 billion bushels, down from 1.54 billion last month and 2.1 billion forecast last May.

Factoring in demand, U.S. corn stocks-to-use (SU) clocks in at 9.6% for 2024-25, which ends on August 31. That would be a three-year low and down notably from 11.8% in 2023-24.

However, current corn prices may not properly reflect that ratio. So far this month, CBOT May corn CK25 has averaged $4.66 per bushel.

The 9.6% SU is eerily similar to USDA’s outlooks from other recent Aprils. In April 2022, U.S. corn SU for 2021-22 was pegged at 9.6%. A year later, a 9.7% SU was forecast for 2022-23.

But in the first 10 days of April 2022 and 2023, May corn averaged $7.55 and $6.51, respectively, well above current levels. Adjusting these to 2025 dollars yields averages close to $8.40 and $6.90, creating an even bigger divergence with this year.

There are three additional occasions within the last two decades where USDA’s April outlook for U.S. corn SU was in the 9% range. In nominal dollars, corn futures in early April averaged above $5 per bushel in all three cases.

The historical relationship between SU and price makes it easy to argue that corn futures may have been overpriced in April 2022 and 2023. But the running April 2025 average of $4.66 probably corresponds with a U.S. corn SU outlook above 12%.

Final corn SU in 2021-22 and 2022-23 came in close to the April projections at 9.2% and 9.9%, respectively.

But those are below both the recent five-year average of 10.7% and 10-year average of 12.5%, validating this year’s situation as tighter than normal.

GLOBAL BACKING

The global situation supports the possibility that nearby corn futures are undervalued. USDA’s estimates imply world corn SU in 2024-25 falling to 11-year lows. Exclude serial grain hoarder China from the mix and world corn SU is at 29-year lows.

USDA on Thursday hiked 2024-25 U.S. corn exports by 100 million bushels to 2.55 billion bushels, the second-largest program on record after 2020-21. That season heavily relied on Chinese purchases, yet there is no Chinese involvement this year.

As of April 3, U.S. corn exporters had sold 85% of USDA’s target for 2024-25, just above the date’s average of around 83%. That indicates slight favorability for the full-year export volume to increase even further.

Barriers to U.S. corn price strength include U.S. farmers’ plans for a huge corn acreage in 2025, as well as relative weakness and fund bearishness in soybean and wheat prices. South America could also have a solid corn offering by mid-year.

Although corn prices have thrived amid this month’s tariff firestorm, that trend could flip as quickly as it did during the February downturn, especially if relations sour again with Mexico, U.S. corn exporters’ biggest supporter.

Karen Braun is a market analyst for Reuters. Views expressed above are her own.