A corn price bottom?
Have corn prices hit a bottom? It seems awfully early for corn prices to hit a bottom, especially if its true that we have a record large corn crop in the field waiting to be harvested. That seems to be the consensus as we await tomorrows October USDA report, and yet corn prices have rallied 30c this week in a strong performance ahead of the report.
Technically, corn looks like it has completed a bottom with higher highs and higher lows now formed technically. There also have been a number of upside daily reversals formed on charts, and basis is unusually strong for this time of year (harvest time). Buyers of corn are having a hard time initiating corn for processing and feed use, and it shows in the strong basis currently offered in many locations. We've completed a nice round bottom which started in July, and has held the lows now for nearly 3 months. The charts are saying, "Corn has bottomed, and is heading higher."
Fundamentally, corn has problems in the country, with late development almost everywhere, and harvest delayed because of that and very wet conditions across the entire corn belt (currently and forecast in the coming weeks). This causing harvest delays and potential for harvest losses as corn tips over under the weight of the heavy ear in soggy soils. We also have some very cold weather which is likely to kill growing corn plants prematurely before they have the chance to mature. Surely this is supportive as well. And outside markets have been supportive, with a weaker dollar and soaring precious metals that should mean commodity inflation is present in other commodities, too, including corn.
So we are starting to see signs that the corn market should have bottomed. The only problem with that scanario is the 13 billion+ bushel corn crop waiting to be harvested. Estimates range from 160-168 bu/acre corn yield for this year, and new record or near record large yield for the US. This one fundamental is a stubborn one, one that won't go away anytime soon. One that means as we progress in this harvest, its likely that we will see further pressure on corn prices as farmers are forced to make harvest sales of a crop which is likely to fill up storages. What do you do with excess corn after storages are full??? Some of that excess corn is likely to come to market (even though there is a hefty carry in the market).
How can we reconcile the above 2 scenarios, one where it all looks bullish, and the other where we have a massive corn crop right in front of harvest?
A potential double bottom at the $3 area could be the answer. We may not go lower than the $3 area, but we certainly can go back down and test those recent lows. Before this recent strength, it seemed likely that corn could do down much lower than $3, especially if the 168 bu yield Informa keeps talking about is right. But a soaring metals market, a sagging dollar, and a strong stock market might mean a world economic recovery is right around the corner, and demand for corn might be stronger than we all anticipated. So somewhere in between the "Doom and Gloom" price prospects and the "Pie in the sky" price prospects might be right. In a double bottom at $3, everyone can be right (or equally wrong), depending upon your perspecitive. Timing is everything, though, as becoming bullish at $3.60 futures if we are going back down to test lower levels will be a huge mistake. Maybe as big a mistake as becoming bearish at $3 futures?