The corn crop has been very resilient, especially the last 20 years of fighting bouts of drought, late planting and flooding. Yet, corn has been a relatively reliable crop.
Improved genetics, tillage practices and good farmers have helped to produce near or record crops on a continual basis. However, in 2011, we're beginning to wonder if this is a year that, no matter how good conditions may be from this point forward, the odds of high yield across the nation just are not high.
For those who buy feed, be on the alert. It's mid July and there is a warm and dry forecast for most of the Midwest. The South continues to broil in hot temperatures as a major drought continues with little or no relief in sight. The vast majority of the corn crop is in good or excellent shape, though there is still one-third that is on the fringe. The weather the next two to four weeks could make the difference between a 163 or 143-bushel yield, or less. If dry weather from the South permeates north, prices could skyrocket.
The Chicago Mercantile Exchange is proposing that the daily corn limits move from 30 to 40 cents. After discussion with customers and representatives of trade groups it was decided that a 40 cent per bushel change may best suit the industry. We're not sure we agree with the premise that 40 cents is best suited for farmers.
After peaking at new contract highs last week, the market has been under pressure this week on a potential shift in momentum.
December corn breached the $7.00 mark, peaking on June 9 at $7.22-3/4. As of this writing, corn is trading near $6.50, under the key support areas. What has changed?
There is a potential shift in momentum as the market digests new news and looks ahead at what could be relatively benign weather for the majority of the corn growing belt.
Another round of showers this past weekend and more in the forecast looks friendly for row crops, especially corn prices.
Spring weather has been less than ideal. When corn prices peaked in early spring, other markets were marching to new highs as well. Livestock, energies, and metals were all reaching new levels, while the dollar sank to its lowest price for the year. However, since then, positive fundamentals for corn have become even stronger. Livestock, energies and metals have experienced significant price declines.
The previous Perspective was titled The Last Nail? We discussed the possibility that, with a negative USDA report, the last nail in the coffin for a bullish market may be in place. However, we ended with the idea that we wouldn't be ready to quite pound that nail in yet. There is way too much volatility and potential. Weather will need to be ideal.
This week we will explore the idea that the corn market has made a very significant and swift turnaround, and that the remaining nails in the coffin are loose and the lid could come off.