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Analyst: Corn Market Can’t Ignore This Much Demand

The past week has been challenging for corn futures. December futures have dropped 34¢ since peaking in October. The catalyst behind this drop was a somewhat surprising USDA report. The report increased yield from the October estimate of 173.4 bushels an acre to a record high of 175.3, increasing production from 15.057 billion to 15.226 billion. Carryout rose to 2.403 billion from 2.320 billion. In addition to a surprising negative USDA report was a sharp increase in the U.S. dollar, which gained over 4%. We believe traders viewed the election of Donald Trump as pro-business and, therefore, saw a high likelihood that interest rates would rise sooner than later. The U.S. dollar currency took off and, consequently, this left a negative perception for future corn exports. Lastly, when prices slid, they pushed through critical moving averages, helping to spur additional selling, as stop orders were triggered.
All of the items above were viewed as bearish, yet none of them are likely long-lasting. We are respectful of big carryout, yet, when looking ahead, one has to remember that the USDA report also indicated record demand. The need for big crops continues to loom large as long as prices remain low. In other words, the economic forces are in play that will keep demand active. Remember the old adage, low prices will cure low prices. All attention will now focus on Southern Hemisphere weather. Prospects for an acreage decline (as well the odds not favoring a repeat of this year’s stellar crop) will be supportive factors.
The key for marketing in the year ahead is preparation and balance. Currently, the markets are stuck in a sideways range, which is very typical in big crop years. However, with demand on the rise and prices starting from a low level, percentage price recoveries are generally strong. Funds have remained short corn futures. As such, low prices will likely switch to net long at the first hint of any adversity, suggesting prices make a quick snap to the topside. Be prepared to sell into this rally. Yet, if prices have a legitimate reason to move higher (such as dry weather or other variables that are not visible at this time), one should also look to be positioned to have those sales covered. Do this through the use of call options. Consider buying out-of-the-money December call options. This will keep you from second-guessing on sales if prices rally. Some may call these courage calls, while others will simply say this is just good business. Whatever you want to call it, keep in mind the power of preplanning, strategy, and a balanced approach. While prices may have declined this past week, they will bounce back. Moving forward, there is too much demand that the market cannot ignore.
If you have questions or comments, or would like help in creating a balanced strategy for your operation, contact Bryan at Top Farmer Intelligence (800-TOP-FARM, ext. 129).
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.

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