A corn-weather rally is still possible
Corn: Yesterday morning on the Kick Start page we noted there was some divergence in forecasters over next week's rain totals. This morning there was agreement to a drier bias for next week. To give credit where it was due it was Drew Lerner, Allendale's contracted meteorologist, who first noted a drier bias Thursday morning. A second forecaster, that we also monitor, joined him this morning. The bottom line here is, after three to four weeks of consistently above normal precip, the eastern Corn Belt will have a chance to plant.
2008 Action: Last year December corn made a peak on May 9 at 655 1/2 and dropped down to 599 3/4 on May 29. Once a chance to plant was given, prices took notice.
Corn Planting: The last couple of weeks have been easy in estimating planting progress. This week will be little tougher. Iowa, Nebraska, and Minnesota will be something like 90-95% complete. However, what do we plug into for the eastern Corn Belt? Many farmers just got into the field this week in Illinois and Indiana. The normal pace from Monday to Sunday night the 17th is for planting to advance by 14%. Keep in mind we are normally finishing with planting right now. Last year farmers got in 22%. Our informal poll here in the office suggested we could run from 12% to 22% this past week. That would bring planting up to 60% to 68% complete as of this Sunday night. The five year average pace is 85%.
Late Planting = Lower Yields: Last night Bill Biedermann brought up one of the studies we completed on this late planting issue. Historically, late planting means we do not hit trend yields. Planting this late in the year normally means a 9% drop from trend yields which would be a very low 142.9 yield. Confounding the issue is the fact last year we were late planted and only .2% lower than trend at 153.9. Bottom line if weather goes perfect, like it did last year, we can somehow scrape by. If it does not we will have a bull market on our hands.
Energy Markets: Whether you like it or not, you cannot have a lasting rally in corn without it being supported by energies. Crude hit 60.08 on Tuesday but hit down to 56.07 today.
Direction: We've laid out a few differing arguments here so let's put them all together. Weather was bullish but may be turning bearish. Energy prices were rallying but now be seeing a setback. We had noted in previous weeks that our models suggested the early April highs of 438 on the December were high enough. The market did break those highs by 17 1/2 cents but now we're right back at those April highs. It is not hard to imagine this market making slow losses through next week. Producers are encouraged to get some work done on hedges if they have not started already. We have 35% locked in with 420 puts. Producers benefit fully all the way up to 540. That's not a bad deal when so many are starting to get a little too lopsided to the bull side. Keep in mind, unless we have energy prices pretty much double current levels, we should not be talking of the +550 some are hoping for. For trading, we are currently long. The next move, as long as weather stays consistent, may be slightly lower...Rich Nelson