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A tale of two crops
“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness … it was the spring of hope, it was the winter of despair…” The penned words of Charles Dickens written 150 years ago are also true today when it comes to marketing.
We might all be feeling a bit of this two-sided emotional struggle regarding old crop corn and new crop corn. On one hand, old crop is lending to the possibility of seeing the Board Price climb back up toward the $7.00 area. On the other hand, the reality of high acres planted this spring brings us to our knees, just to fathom that new crop corn price could potentially slide back down into the $4.00 price level.
What’s going on?
With U.S. ending stocks historically tight, and the shrinking South American crop erasing global hopes bumper supply relief, March, May and July corn futures look like they will continue to hold value in the weeks and months to come. In fact, the July 2012 corn futures chart is suggesting the possibility of $7.00 plus corn, if prices can break out of the recent consolidation pattern to the upside. Fresh fundamental news is needed for that breakout to happen, and until then, further sideways trade is likely.
It’s time to come out from hiding and accept the reality that if a 94 million acre crop is planted, ending stocks will swell to nearly 1.7 billion bushels, assuming trendline yield. Granted, weather is a very important factor, but now, fundamentally, odds are great for lower prices. For prices to not fall, a delayed spring planting must occur, with a hot and dry summer to follow. A head and shoulder technical formation on the December 2012 futures charts points to $4.00 as a downside target, should near-term support get taken out.
The bottom line is that at this time, we are dealing with two very different crops, with sets of very different fundamentals. Old crop has the possibility to be friendly, while new crop, barring any dramatic weather occurrences here in the U.S. over the next four months, may be steps away from a slippery slope lower.
With many producers telling me that their break even is near the $4.50 area, and with many places around the country offering between $5.00 to $5.20 for new crop cash sales, it is definitely time to be thinking of ways to protect that profit. With some prior thinking, you can be prepared for two very likely scenarios—the best and the worst—and everything in between.
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