Home / Markets / Markets Analysis / Can't knock a good thing down

Can't knock a good thing down

Agriculture.com Staff 10/26/2006 @ 2:28pm

Any break in corn futures prices so far has been met with buying. The market only seems to act bad for about a day and a half before speculative buying surfaces and powers the market higher. Even today, prices were five cents lower during the first hour of trade. By the end of the day, December futures prices were steady.

A lot of market analysts have been saying corn prices will be higher-$4.00, $5.00 or more. The exact price doesn't matter. Over the next few years, rising ethanol demand will outstrip corn supplies, leading to these lofty estimates. The market needs to watch behavior more than price. When does behavior change? When does an end-user not do what the market thought he would do? The job of price, one of these years, will be to curtail exports, feed use or ethanol use. It doesn't have to happen this crop year necessarily, but the market is obviously on edge.

The following statement will seem bizarre to many-it is not necessarily positive that prices may rally that much. Such lofty prices will reduce demand for corn for several years. For example, if the livestock industry contracts here or abroad, it will take some time to restore profitability and confidence before feed demand improves. Already this year, chicken producers have suffered low prices in the spring and again right now. Higher feed costs will pinch them immediately, given the short lifecycle in that industry. Does feed demand get cut quickly from a contraction in the poultry industry? The rationing in the 1994-1995 crop year resulted in four years of reduced demand.

The market is still worried about corn acres next year. Of course, the rally in corn prices has meant more farmers are investigating, and committing to, corn-on-corn. Prices started moving so early and that has given farmers confidence that all the analysts' talk may actually come true. The shift must be massive. With lofty wheat prices and increased acreage, strong bean yields and rotation concerns, the market will be uncomfortable well into 2007.

The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial situation.

Any break in corn futures prices so far has been met with buying. The market only seems to act bad for about a day and a half before speculative buying surfaces and powers the market higher. Even today, prices were five cents lower during the first hour of trade. By the end of the day, December futures prices were steady.

CancelPost Comment
MORE FROM AGRICULTURE.COM STAFF more +

Farm and ranch risk management resources By: 07/07/2010 @ 9:10am Government resources USDA Risk Management Agency Download free insurance program and…

Major types of crop insurance policies By: 07/07/2010 @ 9:10am Crop insurance for major field crops comes in two types: yield-based coverage that pays an…

Marketing 101 - Are options the right tool… By: 07/07/2010 @ 9:10am "If you are looking for a low risk way to protect yourself against prices moving either higher or…

MEDIA CENTERmore +
This container should display a .swf file. If not, you may need to upgrade your Flash player.
Big Picture: CME Trading Weather