Corn Market Direction Murky As U.S.-Mexico Trade Reset Still Unsettled

The United States exported about $35 million worth of corn to Mexico in 1993, the year before the North American Free Trade Agreement (NAFTA) went into force. Twenty-three years later, long after Mexican tariffs fell to zero, the US sold $2.6 billion worth of corn to its largest foreign market, the HighPlains/Midwest AG Journal noted in an editorial on Monday.

Those statistics are worth remembering for the one important question they raise: will US corn continue to blaze the trail in Mexico under the bilateral trade agreement announced last week—which, for all intents and purposes, shapes the new NAFTA sans Canada? (Unless, of course, Ottawa makes a hasty bid to join). The answer might provide some comfort to those struggling for consensus on both the fundamental and technical outlooks of corn.

Few are in doubt that the US will return to be Mexico’s preeminent corn supplier once the Trump Administration reaches some sort of agreement on trade policies with the rest of the world. Mexico had in fact been pondering tariffs against US corn and soybeans and buying more of the two grains from Brazil and Argentina before the bilateral trade pact announced by Trump last week.

Stay Short

Some argue that a reset in US-Mexico trade relations will not immediately boost corn’s near-term fundamentals. “The grain market, in general, remains bearish as we enter the harvest season in the next couple of weeks (and) that should continue to put pressure on corn,” Mike Seery of Seery Futures in Plainfield, Illinois, said in a commentary late last week.

US Corn Weekly Chart

“We have ample worldwide supplies” in corn, said Seery, who expects the US Department of Agriculture’s monthly report on September 12 to be bearish “as the crop seems to get larger and larger as each month passes.” His conclusion:

“If you are short, continue to stay short in my opinion, as there’s still room to run to the downside...However, volatility will come to a crawl as that is generally the seasonal effect that harvest has on corn prices. I still see $3.00/3.25 (per bushel) come late October.”

Seery’s advice is the opposite of Investing.com’s own “Strong Buy” recommendation for corn. The front-month December corn contract on the Chicago Mercantile Exchange rallied nearly 3 percent on Friday to a final trade of $3.51. It has advanced further since, touching $3.6625 in pre-Tuesday electronic trade. Investing.com projects strong selling only when December corn gets to the 100-day moving average of $3.7032.

Another View: Wait It Out

Some see Friday’s price surge in corn as little more than month-end squaring activity by large hedge funds. “Although it was constructive price action, we are hesitant to say that the bottom is in,” said Oliver Sloup of Blue Line Futures in Chicago. “We want to be friendly the market, but you have to trade the market you have, not the one you want.”

Sloup said he would be more optimistic if corn bulls could get beyond the $3.70 resistance.

“If the bulls can achieve consecutive closes above this pocket, potentially we could start to see that spark additional short covering...We did turn our bias from bearish to bearish/neutral mid-week, but we need to see more from the market to get us more excited.”

That’s also the counsel of Shawn Hackett of Hackett Financial Advisors, an agricultural markets consultancy in Boca Raton, Florida.

“We are getting no signs that a bottom in prices is imminent, suggesting that lower prices are likely heading into September,” Hackett wrote in a recent note. “While longer term fundamentals remain very bullish, it would likely take until post-large US harvest before we can see a renewed rally in corn prices.”

In typical harvest season pressure, corn could revisit July’s lows of $3.2975, Hackett cautioned. “We are chomping at the bit to recommend a buy here in corn for end-users and investors, but will remain patient for a clear smart money buy signal to emerge,” he said. “For now, this market is one to watch and not act on.”