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Corn needs outside market help-Bryan Doherty

05/27/2011 @ 1:51pm

Another round of showers this past weekend and more in the forecast looks friendly for row crops, especially corn prices. 

Spring weather has been less than ideal. When corn prices peaked in early spring, other markets were marching to new highs as well. Livestock, energies, and metals were all reaching new levels, while the dollar sank to its lowest price for the year. However, since then, positive fundamentals for corn have become even stronger. Livestock, energies and metals have experienced significant price declines. 

In order for corn prices to continue upward, it will take help from outside influences. The livestock market in particular needs to see a turnaround. Prices have taken a massive slide in the last 1-1/2 months. June cattle peaked at just under $122.00, then slid to near $102.00, or a change of over 16%. Crude oil dropped over $20 per barrel and silver lost 35%. Yet, corn prices are knocking on the door of new contract highs. Imagine where corn prices might be if these three outside markets were not on the decline. 

So what does it all mean? If you're friendly in grains, you have a strong argument based on fundamental factors. Historically tight supplies and uncertainty this spring with planting progress and weather bode well for bullish enthusiasm. Yet, keep in mind that someone has to buy at higher prices. With the dollar rising and livestock prices on the decline, there is growing concern that end user purchasing power is quickly being dwindled. Despite bullish factors, this could suggest a bearish price scenario for row crops. 

Therefore, if you have a bullish outlook, that's fine. As a producer, however, you still should have a strategy with a defensive posture, should prices fall. Keep in mind there are two sides to every coin. If demand falters, favorable supply fundamentals matter little. Puts should be bought to establish a price floor for un-priced bushels. This allows you to manage downside price risk on these bushels and participate in a price rally. 

If you have questions or comments please contact Bryan Doherty at 1-800-TOP-FARM ext. 129.

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