Corn price at a 6-week low as planting pace picks up

Corn price is trading at its lowest level in about six weeks. Improved pace of planting and waivers related to the summer gasoline blend are the key bearish drivers.

Fundamentals

In the WASDE Report released earlier in May, the US Department of Agriculture (USDA) lowered its outlook for US corn production for the 2022/23 season by 4.3% from last year. The reduced yield prospects were founded on the slow start to planting in key corn-growing areas within the US. In fact, there were concerns that the pace will remain well behind normal by mid-May. Subsequently, corn price rose to a 10-year  high of $8.27 per bushel; about 20 cents lower than the all-time high hit in August 2012.

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Notably, CBOT futures have since dropped to $7.57 as at the time of writing; its lowest level in over 6 weeks. This follows the USDA report on Monday, which showed that US farmers have made good progress in corn planting. As of 22^nd May, corn planting was at 72%. In the previous week, the seeded crop stood at 49%.

Corn price has also eased on its rally after the US Environmental Protection Agency (EPA) issued an emergency waiver on the required high-ethanol gasoline blend. The move is aimed at easing the soaring gasoline prices as the driving season approaches.

Just as sugarcane is the key source of the ethanol produced in Brazil, the US relies on corn for the same. In fact, about 40% of the US corn crop is used to produce ethanol.

In addition to the emergency waiver enacted about a month ago, President Biden’s administration is considering waiving the environmental rules against components such as butane in summer gasoline. The environmental rules are meant to reduce summertime air pollution.

Retailers are required to sell the summer-blend gas between the beginning of June and mid-September; the driving season that is usually characterized by high temperatures. An enactment of the waiver will likely lower ethanol demand; an aspect that will spill over to corn price.  

In addition to these bearish factors, the probable decline in the demand for US corn exports to China may further weigh on CBOT futures. In an effort to strengthen trade ties, the Chinese government has signed an agreement with Brazil to increase Brazilian corn imports. Seeing that the Middle Kingdom has been a major importer of US corn, competition from the South American country will likely reduce demand for the US produce.