- Our long-held view that the supply of corn along the supply chain is contracting has finally given way to the alternative. Therefore, weaker prices should not come as a surprise. Even if the situation is likely to be short-lived, the impact on price from the change in supply detected by our Implied Spot Model is evident.
- Our proprietary metric for weekly global spot corn demand continues to suggest that a positive short-term demand shock will carry on accumulating, with the price of corn following closely. Weakness in demand during weeks #26-31 is clearly visible and coincides with the temporary supply accumulation discussed above. Hence the strong price reaction to the downside.
- The macroeconomic environment is not constructive for further price gains. The evidence suggests that credit expansion has slowed as the demand for credit lines from economic entities weakened. Credit is vital for global physical commodity trading, but our immediate concern is the price-negative signal we extract from the FX markets. The downward pressure is unlikely to abate this or next week, which imposes a ceiling on any attempt for the price to rally.