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How much more bad news can come out of the corn market was the question from a frustrated Iowa farmer in mid-January.

His frustration was obvious as corn prices plunged lower after the USDA Crop Production and Supply-Demand reports. "I think I'm going to sell my new crop soybeans ahead and skip planting corn in 2009." I warned him that doing a major shift like that could be a major financial and marketing mistake for his farm.

Yes, I will admit, the news has been really negative for corn. In 30-plus years of trading, I have never lived through a $5.00 correction in the price of corn. Short-term corn prices may struggle.

As I look at the long-term fundamentals, however, I can see great price and profit opportunities for the corn crop you harvest in the fall of 2009.

Let's review the news that has driven corn prices lower since the major high in late June of 2008.

First, corn crop conditions improved into July and August, and the huge weather premium that was priced into the futures market came out of the market. This took the market lower as crop conditions stabilized and yield potential improved.

Second was the collapse in crude oil prices and the massive liquidation of long positions by commodity funds. Corn went about $2.00 higher than one would expect and then collapsed at least $1.50 below fair market value at the lows that developed in December of 2008.

Third was the slowdown in ethanol plant consumption of corn. VeraSun went bankrupt, and many other plants slowed crush to minimize losses. Lower gasoline prices more than offset the drop in corn prices, keeping processing margins in the red. This led the USDA to drop corn usage for ethanol by over 400 million bushels in the last three months.

Fourth has been the slowdown in exports. Corn exports are running 350 million bushels behind last year, and the USDA has had to lower projections in each of the recent monthly supply-demand reports.

These four factors explain why corn prices are low, but they don't mean that prices have to stay lower the entire marketing year. In other words, now that this negative news is built in the market, start looking forward to these four market factors. If the trade saying that the bad news comes in at the bottom of the market, then the bad news peaked and prices bottomed in December of 2008.

How much more bad news can come out of the corn market was the question from a frustrated Iowa farmer in mid-January.

Following are some of the key suggestions that I will make with the farmers I work with as they fine-tune their 2009 planting decisions.

  • Know the price of new crop soybean vs. new crop corn. The current ratio of 2.22:1 does not favor planting more soybeans.
  • Watch what happens in Washing-ton, D.C., with the renewable fuels mandate. If the mandate is not changed, then we will need at least 4 billion bushels of corn for ethanol in 2010.
  • Even if you factor in less corn for feeding and a reduction in exports, the ending stocks for corn remains very tight through the next three years.
  • Since last summer, fuel and fertilizer prices have dropped by over 50%. As the cost of growing an acre or corn has dropped, your financial risk has gone down and your profit potential has gone up.

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