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Risk management required -Bryan Doherty

07/29/2011 @ 1:14pm

In both the corn and bean markets, there have been debates whether less-than-ideal conditions so far this growing season will keep supporting prices. That could be the case. In fact, prices could even rally from here. However, from a historical perspective, what goes up, comes down. History would suggest there is plenty of downside risk, but realistically it is limited this year. 

Crop ratings, for corn, indicate 14% in the poor to very poor category. It will be challenging to turn those affected acres around. Therefore, with corn futures trading near $6.75, it may be easy to make a bullish argument. However, the most likely scenario is that corn prices will head lower, especially as harvest approaches. The difference this year, compared to most others, is that a price washout is unlikely. The market has had a couple of curveballs to contend with this year. An earthquake of historical magnitude sent corn prices diving in March. It was just a matter of time before the market recovered and then moved into new highs. A negative surprise on the Stocks and Acreage report caught the market off guard with prices losing a dollar in days. Since then, the market has clawed back and is poised to challenge contract highs.

The point in mentioning these two periods where prices dropped is that the market regained its footing. If crop conditions allow for a somewhat close to average crop, prices will move down and may even take out low prices that were established in both March and early July. However, the likelihood of a complete collapse (or prices falling much further than anyone ever could imagine) is unlikely. As both U.S. and world numbers remain historically tight, price declines will be limited. When prices do decline, farmer selling will likely slow and end user buying will likely increase. The market is probably two years away from a major price decline.


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

Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.

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