$3.71 is seen as corn price floor, CBOT traders say
The Chicago Board of Trade corn market has already fallen 50% from its highs of a few months ago to last Thursday's low of $3.71 per bushel. CBOT traders agree that corn has been dragged down by the huge sell off in the financial markets.
So, the question that many are asking is how low corn prices will go?
Glenn Hollander, a CBOT floor trader with Hollander & Feaerhaken, says it's important to note that the corn market wouldn't have gone as low as $3.71 without the financial crisis.
"It (financial crisis) added the fuel to the fire of commodity mutual funds and hedge funds pulling their money out of the market," Hollander says.
On Thursday, a news report indicated hedge funds have pulled $31 billion, as of September, out of the equity and commodity markets.
This week, a base in the corn price was set at $4.00 per bushel, then the stock market fell 700 points and the corn market dropped to as low as $3.71.
Jason Ward, Northstar Commodities Inc., says there is plenty of room for the corn market to go lower. "I'm looking for Dec. '08 corn dropping to $3.25 per bushel. I don't think we are nowhere near a bottom," Ward says. "With better than expected corn yields, and crude oil going lower, I see corn going down another $0.75."
If the corn market can hold onto that $3.71, confidence in that being the price floor will build, Ward says.
On a technical basis, Hollander says some traders say $3.71 per bushel is the level of support to turn prices around. And the psychological price level is $3.50 per bushel. "But, on any given day if the stock market goes up 700 points, we go back up to $4.25 corn. "It's all panic and tied into all of the other outside market stuff,â€ Hollander says.
Vic Lespinasse, a CBOT floor trader with GrainAnalyst.com, says despite bearish technical signs corn prices aren't expected to go much lower.
"Technically, the charts look bearish but they always look bearish on the bottom and bullish on top. So, I wouldn't pay a great deal of attention to them (technical signs) now," Lespinasse says.
"Of course, if these markets keep breaking, corn, as well as the other grains, will be pulled lower also, so any recovery in corn is tentative until the financial markets regain a sembalance of "normalcy"," Lespinasse says.
Joe Victor, Allendale Inc., agrees that 2008 market bottoms for corn, wheat and soybean futures are highly dependent on the health of the Dow Jones Industrial Average, crude oil futures and US Dollar index.
"Could we see the corn price have a 2 in front of it? Given the fact crude oil and corn futures has sold off 50 percent from recent highs, if corn were to explore $2.90-$3, could this suggest crude may need to sell off to $51/barrel? Given the instability of the U.S. and world economics, credit crises, it very well may be possible," Victor says.
Victor says with higher input costs for seed and fertilizer and weaker cash grain markets, $2.00-plus corn would substantially challenge the U.S. 2009 crop production.