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There’s an Argument for Higher Longterm Corn Prices

This is the glass-half-full theory on the corn market.

There’s no shortage of debate in the corn market.

What is the likelihood of prices moving higher or lower from current levels (near $3.50 December futures)?

The glass-half-full or glass-half-empty theory is an economic philosophy that echoes an argument for price directional sentiment.

The variables that analysts measure are (in theory) the same and, therefore, open to interpretation for which direction prices are most likely to move.

The glass-half-empty crowd is negative on prices, while the glass-half-full crowd is friendly to prices.

The glass-half-empty argument is that big inventories left over from last year, good yield results this year, and harvest will keep pressure on prices.

The glass-half-full crowd, however, may look at a different set of variables and offer more of a long-term perspective.

In this perspective, we will look at the glass-half-full theory. When examining variables that move prices downward, it’s difficult to come up with much of a negative argument than is not already factored into the current market price.

From a price support rationale, probably the most supportive variable is that corn is currently priced at a level where most producers are losing money. Typically, producers are not anxious to give away their crop this time of year. Once harvest is complete, unpriced inventory is usually buttoned up tightly in storage and not likely to move until prices recover.

In addition, a supportive argument for higher corn prices is that the USDA has significantly reduced expected exports, down 443 million from last year’s 2.293 billion.

Is this too much of a reduction? One has to wonder why we would see such a reduction when the U.S. dollar is trading near a two-year low.

Just as important, world demand is likely to exceed world production this year. The USDA is also forecasting a large Southern Hemisphere crop. Any hiccup with Argentina or Brazil production, and U.S. export activity could quickly rebound.

Since the 2012 drought-shortened crop, five years of large production and low prices have created a large demand base, both domestically and worldwide.

Bottom line, even though carryout is adequate, there’s not room for error for corn production in the U.S. or elsewhere. Once the demand ship sails, the only thing likely to make it change course is higher prices.

From a chart/technical view, corn futures have recently posted two very friendly price signals, called bullish key-reversals. One on August 31 and one on October 12, the day of the latest USDA Supply/Demand report.

Managed money is significantly net short futures by over 140,000 contracts. With a lack of farmer selling on price setbacks, it is likely they will be covering (buying back) these positions by late fall.

End-users are in a position to purchase long-term needs with prices currently at their lowest level for the year.

An additional argument for the glass-half-full supporters is that the odds don’t favor continued record (or near-record) production, both domestically and worldwide. Weather issues will sooner or later adversely affect crop production.

Additionally, with corn prices generally below the cost of production availability of capital to finance, high producing crops could be jeopardized. That is, unless prices rally.
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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.
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Lisa Heder Support Services Team Lead | Stewart-Peterson Office: 800.334.9779 | Fax: 262.334.6225 lheder@stewart-peterson.com
www.stewart-peterson.com
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Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Reproduction of this information without prior written permission is prohibited. This material has been prepared by a sales or trading employee or agent of Stewart-Peterson and is, or is in the nature of, a solicitation. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Stewart-Peterson. Stewart-Peterson refers to Stewart-Peterson Group Inc. and Stewart-Peterson Inc. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with both companies. Accordingly this email is sent on behalf of the company or companies providing the services discussed in the email.
 

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