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$12 corn: Crazy, but possible

04/21/2011 @ 3:32pm

CHICAGO, Illinois (Agriculture.com)--At this year’s Commodity Classic conference, at least one market-watcher suggested that a hiccup in the spring/summer crop-weather, causing reduced yields, would cut further an already 15-year low U.S. corn stocks supply, sending corn futures prices marching towards $12 per bushel.

Meanwhile, some CME Group floor traders have figured that, adjusted for inflation, it’s not unrealistic to believe corn should be closer to the $10.00-$12.00 range vs. $6.00-$7.00 per bushel.

As of this week, the July corn futures contract, the one that would see a $12 price first, traded within a $7.70-$7.72 range. So, is it really possible for the corn market to reach $12.00 per bushel?

Currently, a much slower-than-average planting season is raising eyebrows among traders and analysts. Plus, wet and cool weather conditions forecast for the Midwest through April are perhaps building further arguments for a significant corn market rally.

David Hightower, The Hightower Report co-owner, says corn and soybeans both have support to run sharply higher.

“We have to put this $12 corn price into context. As they relate to alternative fuels, with energy prices running higher, this pushes up corn and soybean prices.”

Energy prices are at four and sometimes five times their historic values, and sugar and platinum at eight times their historic values, Hightower notes. "So, $12 corn and upper-teens for soybeans are not irrational prices," Hightower says.

Hightower adds, "The fact is, these ag-markets are so closely tied together than ever before. For instance, if we have a drag in wheat prices, the already tight corn stocks situation will drag wheat prices up with a corn rally."

One CME Group grain floor trader, requesting anonymity, says $12 corn would only follow a weather scenario where you could prove damage.

“I think the March Planting Intentions Report, estimating 92.0 million corn acres, almost had enough to let us feel comfortable with trend yields, relieving worry of a shortage of corn,” the floor trader says.

Plus, Russia will have feed grains to harvest after July 1, propping up the world’s feed supply, he says. “We can still feed some SRW wheat that wet weather is making into more of a feed quality vs. food crop.

Still, rain is needed in HRW regions to keep wheat prices sideways, the Chicago trader says.

Gross dollars vs. $12 market

Don Roose, U.S. Commodities broker in West Des Moines, Iowa, says $12 corn is possible, but encourages farmers to watch their net and gross dollars per acre figure, not just market price.

“We don’t know what the ‘new normal’ corn price level is yet, because we are in a zero interest rate environment. “The cost of carrying goods can slow down a lot of commodity prices. We’ve had these high grain prices for six months. But, that could change dramatically, if interest rates jump,” Roose says.

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