Corn Failing to See Buying Following Trade Announcement

Corn futures are trading weaker mid-day, with prices down up to 2 cents, influenced by a new US-Japan trade deal that includes a 15% tariff effective August 1 alongside Japan's commitment to purchase an additional $8 billion in agricultural goods. Contributing to market dynamics, US ethanol production declined while stocks rose in the latest EIA data, and South Korean importers secured 269,000 MT of corn overnight. Market participants are also awaiting Thursday's US export sales report for further direction.

Analysis

Corn futures are trading with a weaker bias, evidenced by midday losses of up to 2 cents across various contracts, including a 1-cent drop in the September contract to $3.98 1/4. The market is processing a mix of fundamental inputs, led by the newly announced US-Japan trade agreement. This deal introduces a 15% tariff on US agricultural goods starting August 1, a potential headwind, though it is coupled with a commitment from Japan to purchase $8 billion in agricultural products, a significant figure when compared to the historical annual range of $12-16 billion in total ag exports to the nation. Domestically, the energy sector is providing bearish pressure; the latest EIA data revealed a 9,000 barrel per day decline in ethanol production, but this was overshadowed by a substantial 809,000-barrel increase in ethanol stockpiles to 24.444 million barrels, signaling weakening demand. On a positive note, international demand showed a pocket of strength with South Korean importers purchasing 269,000 MT of corn. Market participants are now focused on Thursday's Export Sales report for further direction, with wide-ranging estimates suggesting considerable uncertainty.

Key Decisions for Investors

• Investors should closely monitor Thursday's Export Sales report, as a strong figure could counter the current negative sentiment, while a weak number would likely intensify downward price pressure.
• The net impact of the US-Japan trade deal remains a key variable; traders need to assess if the committed $8 billion in purchases will be sufficient to offset the demand destruction from the new 15% tariff.
• The significant build in ethanol inventories, despite lower production, indicates softening domestic demand, warranting a cautious outlook on corn prices until these stock levels begin to decline.
• Given the conflicting data points and prevailing price weakness, maintaining a neutral-to-cautiously-bearish stance may be prudent pending clearer demand signals from upcoming trade data.