Analysts see reasons to be bullish on corn
After recapturing part of a $1.00 loss over the last week on the nearby CBOT corn futures contract, analysts see a lot of reasons for bullish optimism in April.
Noel Blue, CBOT floor broker and analyst, said producers can expect higher prices sooner rather than later. Within a week, corn futures prices could gravitate back toward $4.00 or $4.20, Blue says.
"People thought they missed the boat by not selling above $4.00, but it was a fear-driven sell-off. Once people started to digest the data and reassess the bigger picture, it was clear the recent move down was a technical correction," Blue says.
One indication a bullish market is gaining a foothold is the purchasing of deferred contracts. Though the nearby corn contract was selling off, people were buying upside calls in the option market, Blue said.
"A lot of the funds and some commercials have been buying several thousand calls at a time," Blue says. "For Dec. and July, $5.00 calls are being purchased for protection. Even $5.00 calls for Dec. '08 are being purchased."
With the latest estimates having ethanol production rising as much as 60% by year's end, producers should get more involved with options contracts to protect their positions, Blue said.
Mike Krueger, World Perspectives, Inc., is telling producer-customers his company stands 40% sold on new-crop corn, soybeans and wheat and is not anxious to go beyond those levels.
If producers want to be further sold, they should consider a combination of buying puts and selling calls to put in a reasonable price floor, he says.
Krueger offers several reasons to remain optimistic for a stronger corn market.
"We don't think the 12.0 million acres of corn, estimated by USDA, is going to materialize. We think the number is going to be 10.5 million," Krueger says.
Also, if the U.S. sees fewer acres, bigger yields will be needed to rebuild supplies.
"With fewer acres, the trendline corn yield that everybody thinks we can reach will be under even more pressure than it already is," Krueger says.
Meanwhile, with the decline in corn prices in the last two weeks, and the steep increases in oil prices, all of the sudden ethanol margins are back to lofty levels. "That tells me we are sending signals to expand existing plants and start new ones," Krueger says.
John Roach, Roach Ag Marketing, Ltd, cautions producers about jumping on the bear wagon.
In his daily newsletter, Roach said the fundamentals of an increasing world demand and tight ending stocks are still in play.
"I am personally in the camp that we need 90 million acres of corn this year. Tight supplies at a time when U.S. policy is aggressively trying to shift increasing percentages of our motor fuel to biofuels is a big worry," Roach says.
For next week, the recent weather scare with the winter wheat crop should underpin the corn market, Blue says.
For soybeans, analysts are less optimistic, because if producers plant fewer corn acres than the USDA projected, that means more soybeans. Plus, with an already large supply, and a record crop being harvested in South America, a longer-term bearish tone hangs over the bean market.