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.
This week's USDA Supply and Demand report raised carryout in corn and consequently the market promptly reacted by dropping 30 cents. This is the second month in a row where projected carryout was larger than pre-report estimates, and consequently the market reacted negatively. When viewing corn from a historical perspective, there is some correlation that suggests prices have more of a tendency to peak in the height of uncertainty. This is generally in the mid to late winter or spring months.
Never before have most farmers seen such opportunities in the commodity markets, at least according to many we talk to.
The much anticipated acreage and stocks report, as expected, had fanfare and sent prices in a limit fashion, at least for corn. Perhaps more importantly than the acreage estimate, which for practical purposes is merely a guess as to what farmers may do, the stocks report in both corn and beans had friendly surprises. While the bushel amounts weren't dramatic, when you relate the drop in quarterly stocks in both, and then take this figure and extract a likewise drop in bushels on the carryout, the reports were gigantic.
The much anticipated acreage report is due out from the USDA on March 31. This will give the market its first glance at what farmers intend to plant. How much bearing does it have? It could be an earth mover as far as reports are concerned. The market will pay close attention. However, does it really have that much bearing? We would argue probably not.
If someone had told you a month ago that the corn market would lose over a dollar a bushel on worries of Libya unrest and an earthquake in Japan, you might have thought they were drinking water from the wrong well! Yet, those are the kinds of things that can torpedo a market and, after eight months of up-trending prices, uncertainty in the world seemed to be enough to spell liquidation and push prices lower. Is this the beginning of the end or just a correction?