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Wheat a drag on corn prices

02/24/2012 @ 12:57pm

Corn futures are poised to move higher as record tight inventory (in the U.S. and world) suggests rally potential for prices is high. Any disruption to this year’s supply, or even the perception of trouble growing this year’s crop, and prices could take off. However, the wheat market will act as a drag on corn prices. Unless there are weather-related problems elsewhere in the world with 2012 wheat crops, corn prices may likely have a limited upside potential despite tight inventory.

If corn prices begin to rally, wheat prices will become competitive against corn. Yet, unlike 2008 when world supplies of wheat were snug, inventory is now at record levels. In 2008, the wheat market paved the way for higher corn prices. That year saw most all commodities, as well as stocks, rise. Yet, when prices began to slide, it was wheat that led the way down. Yes, we are suggesting corn may be a follower of wheat. Unless wheat prices rally, it is unlikely that corn prices will be able to push much above $7.00. Yet, anything is possible. For now though, corn producers should be prepared for wheat prices to slide into harvest; likely early July. On the other hand, if dry weather strikes again this year, wheat prices could lead the charge higher. So, how do you prepare?

This is a year that corn producers should adopt a sell-and-defend approach. We think rally potential is limited, both from a demand perspective and increased wheat supplies. Yet, if corn prices were to rally, you want to make sure and reward the market through strong cash sales. This is especially true if wheat prices fail to rally. Cover sales with call options. If weather turns negative for wheat, the sky is the limit for corn prices. Be prepared and balanced.

If you have questions or comments, or would like help implementing strategy for the year ahead please contact Bryan Doherty at 1-800-TOP-FARM ext. 129.

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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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