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Rich Nelson: Corn to get boost

01/03/2011 @ 10:16am

Going into the end of the year there should be no surprise to see it end the way we have seen it trade for the entire second half, bullish. Market mentality is that funds will move back into the corn, buying it aggressively to start the New Year. It may be more accurate to look at this market year on year to start and end on the Jan report rather than years end. It appears we have come full circle. 

To start the year, corn rallied into the Jan report with an ending stocks number of 1.675 billion bushels. On the report, the March corn was trading as high as 459. After that report was released a fall off occurred that didn’t start a true turnaround until June 30th. Obviously corn rallied back quickly to current levels and now we are looking at a carryout of 832. Ethanol production is outpacing USDA’s expectations and there is little reason to think bearish right now. 

This sounds all too familiar to the mentality we had last year at this time. That means this time around everyone is bullish just the same as last year. Bulls will say that they have a better case this time around holding onto a drastically lower carryout. Bears will say that beneficial weather in South America could turn this market at any moment and also don’t put it past USDA to raise production numbers on the upcoming report. This time around it is ok to stay bullish going into the report, we just have to make sure to have some type of downside protection in case corn slides all the way to summer once again. We are not about to miss out on profitable Jan prices two times in a row. Prices are too high not to protect them in some manner. What appears to be the best lesson learned from last year would be not to get caught up in extremes. Let’s not allow those saying $10 corn to keep us from protecting current high prices and at the same time not allow talk of drastically lower corn prices in summer to keep us from putting some given profits in our pocket. 

Direction: Trade is fully prepared to start the year off with a bullish bang. There is still no reason to expect anything other than bullish trade leading up to the Jan report. This bullish charge may slow leading into the final few days before the report and direction from there will be determined by the USDA. If numbers are neutral or bullish, the charge higher is likely to continue. If bearish then corn has technical ability to set back aggressively…Ryan Ettner

 

Trade Recommendation:

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