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Volatile June Ahead

After dismal grain prices for months, corn futures have rallied 90¢ off their recent lows due to the unprecedented rain event that occurred during the months of April and May. Chicago wheat futures are $1.00 off their recent lows and even soybean futures joined in the rally, trading 90¢ off their lows as well.

Where to go from here? U.S. corn crop is approximately 70% planted as of this writing (when normally it is completely planted by now) and Illinois is approximately HALF planted (yes, you read that right). Normally Illinois crop is 100% planted and thigh-high by now! The price upside, quite frankly, has additional potential. This is a historic, slow planting start, and the crop that has emerged doesn’t look the best. Yield potential will likely be reduced due to the late planting pace and nitrogen that has been washed away or, in some cases, not even applied. 

Some analysts are estimating there are roughly 26 million acres of corn yet to be planted with the potential for prevent plant acres to come in near 7 to 10 million acres. With yield potential to be reduced, I have heard that U.S. corn ending stocks could drop to 1.3 to 1.5 billion bushels, with some citing estimates lower than that. If this is the case, December corn futures prices do indeed seem likely to work higher. 

Since May 2014, December corn futures have not been able to trade significantly higher than the $4.50 price area. This of course, is due to ample U.S. and global corn supplies during those times. How high could December corn futures prices go? Using Fibonacci retracement, a continuous weekly chart of December corn futures, and using the price high of $8.49 from the August 2012 high and $3.14¾ from the August 2016 price low:

  • A 23% retracement took December corn futures to $4.40 (reached last week)
  • A 38% retracement suggests December futures could reach $5.18
  • A 50% retracement suggests December futures could reach $5.81

Keep in mind, bull markets need to be continuously fed. In order for the price targets above to be met, the reality is that the corn crop supply will be dramatically reduced indeed. Will producers plant corn past the prevent plant date hoping to secure higher prices? Will Mother Nature suddenly cooperate? Only time will tell. Make sure you are remembering lessons from the past historic rallies, remembering that prices can indeed scream higher for days upon days only to halt and slam lower just as quickly as they rallied. If you are looking for ways to potentially capture the rally, or protect unpriced bushels, feel free to reach out and contact me.

If you have questions, you can reach Naomi at nblohm@stewart-peterson.com.

The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Neither the information presented, nor any opinions expressed constitute a solicitation of the purchase or sale of any commodity. Those individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures trading involves risk of loss and should be carefully considered before investing. Past performance may not be indicative of future results. Any reproduction, republication or other use of the information and thoughts expressed herein, without the express written permission of Stewart-Peterson Inc., is strictly prohibited. Copyright 2019 Stewart-Peterson Inc. All rights reserved.

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