In recent weeks, the focus among investors has been on the growing tensions between United States and China. Already, the tit-for-tat between the two countries has seen the introduction of tariffs on goods worth more than $260 billion. This has had major impacts on financial assets like copper, soybeans, and platinum. However, a commodity that has defied the norm is corn.
As you can see in the chart below, the price of corn has risen from $3.43 to almost $4.0 per bushel. This growth is attributed to a number of reasons. First, as the African Swine Flu spreads in China, the demand for soybeans has reduced. This has seen more American farmers plant corn in this season. Second, most of the areas that corn is planted have been seeing unprecedented floods as shown below. The chart below shows the flooding outlook for spring.
Even with the floods, the
recent WASDE report showed that the production will likely continue moving
upwards. In the report, the agricultural department said that the crop is
projected at 15 billion bushels, up from last year and the second level on
record. At the same time, the demand for corn has continued to rise while
exports are expected to decline by 25 million bushels. The report said that:
With total U.S. corn supply rising more than use, 2019/20 U.S. ending
stocks are up 390 million bushels from last year and if realized would be the
highest since 1987/88. Stocks relative to use at 16.9 percent would be the
highest since 2005/06. With larger stocks relative to use, the season-average
farm price is projected at $3.30 per bushel, down 20 cents from 2018/19 and the
lowest since 2006/07.
As shown, the price of
corn has increased from $3.40 to almost $4.0. This price is higher than the
25-day and 50-day moving averages while the RSI has remained closer to the
overbought level of 70. While the pair has risen by a lot, there is a
likelihood that it will continue moving higher.
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