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The bearish argument for corn

Agriculture.com Staff 11/16/2007 @ 1:10pm

Last week we took a look at the bullish factors that could affect the corn market in the months ahead. We also looked at variables that appear to be pushing prices higher near-term, energy prices and a sinking U.S. dollar. For this week, we will take a look at the potential bearish factors that could affect the corn market.

The energy markets and U.S. dollar may already be old news. If energy prices do not maintain an uptrend, corn prices could begin to soften. In addition, if the dollar rebounds, expectations of robust export sales could change. This may not only affect the price of corn, but the mindset of traders.

When looking beyond the near-term factors, the real question is what corn acreage will be for 2008. It is likely that a shift from some corn to beans will happen, but how much is yet unknown. If corn futures rally enough over the next 3 to 4 months to encourage farmers to once again stay on the heavy side of a corn rotation, it is likely that expectations for another large crop will grow. During this past year, parts of the Midwest struggled with weather. What if there is ideal weather in 2008 and acreage holds close to the same as last year? With improved genetics, solid farming practices, as well as great farmers, corn prices could be in for a major slide if 2008 production pushes up to 14 billion bushels.

If world corn production increases, both U.S. and world projected carryout could actually move upward rather than the expected downward trend that the trade is currently expecting. High feed costs could reduce livestock production, thus reducing corn demand. Lastly, what if ethanol production does not live up to expectations?

The point of this Perspective is to remind producers that what goes up usually comes down. Over most of the last 20 years, the corn market has (in some way or another) figured out a way to produce just a little more corn than needed. Prices have responded by moving lower.

Lastly, what about the contrarian farmer who may actually plant more corn with the expectation that most farmers are planting less? This could, in the end, mean little acreage change and big corn supply for 2008.

If you have any questions or comments, please contact Bryan Doherty at Top Farmer: 1-800-TOP-FARM.

Last week we took a look at the bullish factors that could affect the corn market in the months ahead. We also looked at variables that appear to be pushing prices higher near-term, energy prices and a sinking U.S. dollar. For this week, we will take a look at the potential bearish factors that could affect the corn market.

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