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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
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.
Market Scenario Planning(sm) is a service of Stewart-Peterson
Inc. The data contained herein is believed to be drawn from
reliable sources but cannot be guaranteed. Neither the information presented, nor any opinions expressed constitute a
solicitation of the purchase or sale of any commodity. Those individuals acting on this information are responsible for their own actions.
Commodity trading may not be suitable for all recipients of this report. Futures trading involves risk of loss and should be
carefully considered before investing. Past performance may not be indicative of future results. Any reproduction, republication or other
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