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Weather already?

Agriculture.com Staff 04/05/2008 @ 7:45am

As of this writing, April 4, it is hard to talk much about weather affecting this year's corn and soybean crops, but the market has already sunk its teeth, somewhat deeply, into weather.

With tight global and U.S. stocks, the corn market will perceive any conditions that are less than ideal as a potential disruption to supply. Typically, wet weather in early April, while concerning to those who are not planting, does not necessarily affect crop size. History, especially the last decade, has suggested that rain delays, while a concern when occurring, melt away rather quickly once farmers have an opportunity to aggressively plant.

However, in a year with heightened anxiety and a must-have crop, corn prices made a substantial jump this week, reflecting concerns that the southern portions of the Corn Belt could be witness to at least a two-week or more planting delay. "Less than ideal" conditions will continue to provide support.

Rain makes grain, but first the seed needs to be in the ground. Our belief has generally been that wet conditions in spring are less of a factor than historically, due to the ability to quickly plant. Late-planted seed goes into moist and usually warmer soil and, therefore, quick germination occurs. Yet, if wet weather conditions continue this spring, the prospect that a portion of the southern Corn Belt crop being exposed to hot conditions during key pollination will keep bullish traders actively investing now for the perceived future problem. We do not disagree.

We have suggested the corn market will probably peak on futures between $5.50 and $6 unless there is a weather concern. Weather could take prices another 50 cents to $1 higher, which means upside potential of $6.50 to $7. Legitimate weather (or actual crop loss) could theoretically double corn prices, as end users and speculators chase the market. Bottom-line, if you have aggressively forward contracted, consider buying out-of-the-money calls as safety valves. If you want to keep unpriced inventory off the market but want a floor, ante up and buy PUTS. Do not be too concerned with premium value. Prices are currently poised to drop $2 or rally $3.

If you have questions or comments, contact Bryan Doherty at Top Farmer at 1-800-TOP-FARM ext. 129.

As of this writing, April 4, it is hard to talk much about weather affecting this year's corn and soybean crops, but the market has already sunk its teeth, somewhat deeply, into weather.

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