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Traders see corn leading CBOT markets

CHICAGO, Illinois (Agriculture Online)--The commodity with the most underlying strength on the floor of the Chicago Board of Trade is corn, traders say.

Because of a wet U.S. spring, there are questions about how many corn acres will be planted, yield loss, tight stocks, strong demand, with no signs of rationing.

Matt Pierce, a floor trader with Futures International LLC, says weather problems keep the corn market ahead of wheat right now.

"We still have massive amounts of rain hitting Ohio, Michigan, Indiana, Illinois and Missouri. Those are the states already behind in planting," Pierce says.

On Thursday, the December CBOT corn contract set a new all-time high of $6.46 per bushel.

Don Roose, U.S. Commodities, says the Dec. corn contract, representing new crop corn, will be the focus from here on out.

"July will die in the middle of the month of July, while this market will continue deep into the summer," Roose says. I think for Dec. corn the upside price objective, with rationing, is closer to $7.00," Roose says. "Especially if something goes wrong with the growing season."

Roose says corn remains the floor leader because the U.S. is struggling to keep the 2008/09 ending stocks above the pipeline minimum of 650 million bushels.

"The use of corn for biofuels, strong export demand, and feed usage, is drawing corn stocks down to very tight levels. All three areas are very strong in usage numbers," Roose says.

Last year's record-high corn acres pushed up soybean prices, in an attempt to lure producers to plant more soybeans.

However, all of this happened before the wet spring planting weather set in. Now, with the wet weather market cutting back some corn acres, the market is trying to buy back some corn acres.

Meanwhile, traders say history shows delayed planting can result in fewer corn acres.

In 1995, when it was wet, the U.S. lost 3.0 million corn acres from March to June.

"In addition, last year's delayed planting resulted in lower than trendline yields. And last year's planting pace was faster than this year's is going," Roose says. All of these points are supportive for corn prices.

For soybeans, it's hard to capture the lead role on the trade floor when a number of bearish factors are lining up such as a large South American crop hitting the export market, and possibly more corn acres being switched to soybeans.

For wheat, big prices earlier this year brought big production around the world, so supplies are going to build significantly this year.

Glenn Hollander, cash grain trader with Hollander & Feaerhaken, says determining a floor leader is difficult right now.

"You have two different things going on. For corn it's weather and questions about the ethanol future that is driving that market, and for soybeans the Argentine strike talks. There is no real leader," Hollander says.

MARKET PLAY

So, what's the best market play right now for
the producer?

Bottom line is the producer has to protect his or her gross dollars per acre, Roose says. "When you have profitability, you have to do something about it. It's just a matter of the tools you use."

There are a number of 'option' tools that can be used for a producer to lock in a floor price for a chance to catch some upside moves.

"We're telling our farmer-customers to either sell the market and buy insurance in case the market goes up. Or, not sell the market and buy floor protection," Roose says.

Pierce says the spreads are indicating the producer should sell old-crop and wait to sell new crop.

"The July/Dec spread was even two weeks ago, but that has widened to 17 ½ cents," Pierce says. So, any of the near-term extreme bullishness has faded. With a lack of international interest, this has allowed cash values to drop in the Midwest and the Gulf. That promotes getting your old stuff out right now before we plant a big crop and all of a sudden realize we will have plenty in the fall."

Hollander says the farmer has a problem finding someone to buy at the current high flat price.

We usually have one more spring rally. If we ever get the corn in the ground, the talk of a drought is still out there," Hollander says. A Chicago weather forecaster says the hot/dry weather dome is going to start in May or June. So, right now the producer needs to get the rest of his/her crop in the ground and be ready to pull the trigger on the rest of his grain.

There will be a market carry later on, but will it be possible to find someone to carry the old crop and store two years worth of corn, Hollander says. "It looks like the producer doesn't have a choice but to sell old-crop at these prices."

CHICAGO, Illinois (Agriculture Online)--The commodity with the most underlying strength on the floor of the Chicago Board of Trade is corn, traders say.

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