One of the futures market's jobs, by definition is to anticipate. Futures market trade attempts to use today's knowledge and opinions to determine what a commodity will be worth in some future month. A collection of fundamentals in the corn market highlights how this thought process determines prices.

The growing ethanol industry means corn demand in future years will increase, a bullish situation. The exact timing of the increases can be debated, but the growth can not be ignored. How many years will this take before a leveling off occurs? Questions remain regarding feed use, the primary domestic market for corn, due to the increased production of DDG's.

China's position as a corn exporter (or will it be importer?) adds uncertainty. Right now, it is certainly bullish that China is not exporting corn. South Korea and others in southern Asia have had to come to the United States for corn, improving, at least for awhile, the US export situation. But is it a long term situation? The US ag attache's recent adjustment of Chinese stocks (they were raised for the past two years) gives a bearish flavor. Plus, the stocks adjustment was due to decreased domestic use, certainly not bullish.

So, on the demand side, that's one short term bullish factor and one long term bullish factor.

On the supply side, the market is faced with one known, incredibly bearish factor—the massive 2005 crop. Even in the face of drought conditions through parts of the Corn Belt, the US grew the second largest crop on record. The 2006 and beyond corn crops are the unknown factors. In the futures market, unknown factors produce anxiety and uncertainty. That's why a risk premium exists in prices until solid information is available to the marketplace on yields and acres.

Most understand there will be reduced acres (less corn on corn, high nitrogen prices, etc.) in 2006. Uncertainty comes from La Nina and the dry conditions in much of Iowa and Illinois that have been present this winter. Actually, the presence of a La Nina really does not suggest a particular kind of weather for the Corn Belt this summer. As if to prove that, the arrival of the March rains has softened prices as drought concerns have eased.

The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial situation.

One of the futures market's jobs, by definition is to anticipate. Futures market trade attempts to use today's knowledge and opinions to determine what a commodity will be worth in some future month. A collection of fundamentals in the corn market highlights how this thought process determines prices.