Watching for a Low in the Corn Market
As summer winds down and harvest draws closer, expectations that corn prices will find a low, after sliding from midsummer highs, are likely correct. Now it’s just a matter of identifying when the low may occur. Typically, prices have a tendency to bottom, either anticipating harvest or shortly after harvest. From an end-user perspective, feed has once again become a value or a bargain this year, just as in the past two years. We’ll define a bargain as the ability to buy a product for less than it costs to produce it. Corn producers who have sold should also be paying attention to the market this time of the year, as it may provide an opportunity to retain ownership.
End users should purchase the physical grain. With a carry in the market, contracts are trading at a higher level on deferred months, rather than front months. The market is telling you to take ownership sooner rather than later. However, if you are unable to take delivery, consider purchasing out-of-the-money call options or hedging through the use of futures. Keep in mind that owning futures entails the need to potentially meet margin calls, and this will have to be factored into your decision.
From a longer-term perspective, prices have a tendency to bottom in the fall months. This doesn’t necessarily mean they will rally. As demand continues to chew through a cheaply priced commodity, it’s just a matter of time before prices move higher. Often this move may sneak up on you. It is a natural tendency to become complacent when prices are low. After all, being patient (or complacent) allows for prices to fall to a better buy price. Yet, waiting too long to buy can create a more difficult decision process. If prices begin to recover, there is (again) a tendency to wait for a pullback. If prices don’t pull back, you may end up chasing the market. This year’s world supply of corn will likely be less than world demand. A quick recovery could be at hand while you’ve been waiting, especially if Southern Hemisphere weather is less than ideal. The key is to plan ahead, so now is the time to put together your action plan for buying corn.
If you have questions or comments, contact Top Farmer at 1-800-TOPFARM, 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.