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Accelerating Markets

09/24/2010 @ 2:40pm

The corn and soybean markets have accelerated upward in recent weeks with prices finding buying interest from a variety of areas. In particular, corn has found support from concerns that yield is not living up to expectations.

Just a month ago, the crop was expected to yield 165 bushels an acre and now estimates are moving down toward the upper 150 range. With relatively tight carryout, every change in yield can reduce stocks by about 80 million bushels. Therefore, with carryout estimated somewhere near 1.10 billion, a drop of 6 bushels an acre could theoretically suggest a likewise declining carryout to less than 700 million bushels.

Higher prices generally curb demand, so where the actual figure eventually rests may depend on just how aggressive or unaggressive end users are with high-priced corn. The point, however, is that the market is experiencing a perceived drawdown in carryout and, in turn, prices have shot higher.

The bean market has accelerated on concerns of weather elsewhere in the world, despite good early yield results. In addition, a ravenous appetite by China, almost regardless of price, is paramount. The supply concerns with is that, despite record crops from the U.S. last year, South America this year, and what now appears to be another U.S. record crop, the market can’t supply the world with enough inventory. Supply rationing through higher prices is occurring. Whether or not this rally in beans of over a dollar in the last month can be sustained may be anybody’s guess, and it’s unlikely if carry grows.

When prices rally, farmers are disappointed they sold early. The last four years have been volatile with rallies occurring through harvest in three of those years.  We encourage farmers to take stock and perspective in just how marketing in volatile times can always seem challenging, yet when working toward building an average you’ll find that, over time, you are satisfied with your selling price.

Now is not the time to shy away from marketing. For those who sell early and feel disappointed, just remember back to a couple of years ago when corn prices were over $8 a bushel and then dropped under $3 in a matter of just a few quick months. We’re not forecasting that this year, although prices can go from looking very bullish to very weak merely on speculative liquidation. Funds have moved into net long positions at a record pace. If funds and speculators exit the market at the same time, prices could have a violent move downward. Therefore, selling value and looking at variables like return on investment and cash flow needs make sense in a year of high volatility.

Ownership of corn or soybeans is great when the market is going up and heartbreaking when prices drop. Our point is, continue to do the right thing and sell enough product on rising value to a point where you are comfortable. After enough is sold on price, allow the market to run to the upside as far as it wants without jumping in front of it. The best method to do this is to follow the market with trigger points or stops. These are executed when the market begins to show weakness. This method can often help producers capture what we would term the middle ground of a significant rally.

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