Is history repeating?
As far back as the summer of 2009, market analysts were warning that although soybean prices were good at the time, as soon as the big crop was ready to harvest, prices would go into the tank.
In fact, prices did drop a bit as the United States crop matured. However, before harvest was over, soybean prices started the normal dead cat bounce. Before it was over, the bounce became one of the biggest in history.
Then the analysts warned that an anticipated South American crop would be the catalyst that would take prices down. That crop is now being harvested and the historic "John Deere Low" that normally comes in the January and February time period proved to be mostly a non-event. Soybean futures prices now are hovering near the $10 level and show few signs of crashing in the near future.
I am starting to wonder if history is going to repeat itself in the corn market. Corn prices have not held together as well as soybeans in relative terms. However the apparent fundamentals for corn are less positive. The latest government report predicts carry-over large enough that there is little chance of a shortage without major weather problems. Planting conditions could hardly be any better in most of the corn producing area. Planted acres will be huge. Yet, corn futures prices have had one of the best weeks in recent memory.
Interestingly, it appears that market moves in both grains have the same source-Chinese demand. The real test of this effect will be whether corn prices can continue to rally in the face of continued good planting conditions and a potentially huge crop. Six months ago I feared that soybean prices would succumb to the avalanche of southern beans. However, I held out hope that it would not happen. I sold cash beans as prices rallied following the October low. As a result my average selling price was well above the low and historically good for a big corp. It was also below the top of $10 a bushel.
Just because I see a similar situation shaping up in the corn market does not mean that I am reluctant to sell. In fact I have only about fifteen percent of my old crop corn yet to price and I sold the first contract of 2010 corn this week. I believe in selling increments on rallies during the period when prices are most likely to be high. That is now. I like selling in increments because there is always the possibility that the 'seasonals' will be right and prices will drop drastically as production risk becomes less of a factor.
A week ago the chart pattern for corn futures looked absolutely awful. It does not look as negative after this week's rally. Using the futures market, taking advantage of the December futures that are higher than nearby and anticipating being able to sell the carry at harvest, I can net over $4 for new crop corn. That is roughly equal to this year's price. I can live with that for the first increment and hope for better opportunities this summer.