Crystal ball for corn
You've heard it by now. Corn futures on the Chicago Board of Trade are already at an all-time high and seem poised to potentially go higher. As of this writing, the market seems to have securely placed $8.00 as the short term support area for December corn futures, with $8.25 as the nearby resistance level higher. The recent drought has slashed yield potential with most feeling national yield could be anywhere between 125 bpa to 132 bpa. The severity of such widespread dryness has not been felt since 1988.
At these high prices, many are concerned that demand has faltered, and it has: exports are down, ethanol plants are temporarily closing, and feed use for livestock is beginning to lessen as many producers are bringing their livestock to market sooner than later with the high price for feed.
The bullish near-term argument is that the crop is deteriorating at a faster pace than the USDA can project decreasing demand. The crop continues to deteriorate as a whole on a weekly basis. At this writing, the crop is rated as 23 percent good to excellent, well below the norm. Last year the crop was rated as 60 percent good to excellent in early August. In fact, the U.S. crop is also rated as 50% poor to very poor versus 16 percent one year ago.
According Bryan Doherty, an advisor in our office, "The dry weather has affected localized areas, and drought with heat has affected every major corn producing state. This implies no large pockets of high yield. With increased farmer storage, the likelihood of producers aggressively selling corn at harvest is next to nil. This means basis levels improve (grow stronger) during the winter season, as end users have to more aggressively seek corn, or whatever feed product they can find. Therefore, between ongoing crop deterioration and expectation that end users and speculators could continue to chase prices higher, it is unlikely corn prices have reached their high. With the worst drought conditions since 1988, (and possibly even worse -- it rained in the August of 1988) we can't help but believe the high for 2004 will be eclipsed with prices heading toward the $8.50 to $9.00 zone before true rationing takes place."
The markets are really still moving and shaking with $1.00 price swings still possible this fall and winter. It is imperative to watch the markets daily and find a way to stay on top of it all. Plan for any price scenario possibility and be ready to pull the trigger with your pricing strategies. The more you know and plan for in advance, the more prepared you will be when your moment arrives.