The corn market is at a crossroads, analyst says - Successful Farming

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Bulls are sharpening their horns while bears grit their teeth.

While this is very visual, it may encompass the two camps of thought that are developing as traders look toward this year’s crop and price potential.  

The bull rally that has been in place for over a year for soybeans and since August for corn does appear to have topped in May. Weather is the most important factor for crop production and, while a fast start to the planting season has occurred, what happens over the next 30 to 60 days will set the tone for either a continuation of a bull run for prices or a price slide, representing increasing supplies.

Let’s look at the forces pushing prices this year. Currently, at least on paper, the corn crop is in great shape. Planting at 95% complete is ahead of the five-year average of 87%. The first hurdle in any growing season is getting the crop in the ground. Emergence is 81% vs. the five-year average of 70%. This week’s crop ratings figure came in at 76% good-to-excellent, which is above last year’s 74%. All this data would suggest a strong start to the growing season and little reason for end users or speculators to be buyers.

On March 31, the USDA anticipated acres at 91 million. This was less than expected and provided support for prices. Corn futures for new crop rallied from near $4.50 to well over $6.00. With a relatively dry spring and fast planting progress along with an economic incentive, it is highly likely that corn acres will be greater than 91 million, with most analysts anticipating between 93 and 94 million acres. One private firm is as high as 96 million.

If the crop were to yield near 178 bushels an acre, it is easy to project an increase of between 300 and 500 million bushels to projected carryout, reversing a trend of declining ending stocks. If weather is conducive for the growing season, this is another reason that prices could quickly decline, potentially dropping at least back to the $4.50 area.

The bigger picture supports prices through strong demand and weather uncertainty. Improved ethanol margins and outstanding exports argue that the market is hungry for supply, and that anything less than ideal weather could send prices spiraling upward.

The stage is set for a price rally, as dry conditions continue to be a major concern in most of the Midwest and an emphasis in the western and northern regions. Recent rains have been beneficial.

In general, however, amounts have been light in an already exasperate dry scenario where some soil conditions show little or no subsoil moisture. Many would argue that severe dry to drought-like conditions have existed beginning last summer and have not abated other than with occasional showers. It is critical that rainfall be timely and sufficient over the next 60 days.

Many farmers would argue their crop is in good shape. Still, they are just getting by. Add to this picture parts of Brazil suffering their driest conditions in 90 years. Private sources continue to downgrade Brazil’s second crop (called safrinha) and, therefore, the entire crop is being downgraded. The most recent USDA report shows expected total Brazil corn production at 102 million metric tons. Private estimates are ranging between 90 and 95 million metric tons.

In the end, it will boil down to whether there is sufficient moisture to produce this year’s crop to current yield expectations of just under 180 bushels an acre. Some have argued that an increase in U.S. acres will offset the loss in Brazil.

On paper this probably makes some sense, yet an end user is not worried about what’s on paper. Rather, they’re concerned if availability of supply from U.S. producers will be adequate by fall. We cannot underscore how important sufficient moisture will be for this year’s corn crop. Our bias is that anything less than necessary rainfall will bring December corn prices to challenge the all-time high of $8.49 from 2012.

Prepare yourself for any scenario.  Look to an adviser for marketing tools that will help you in your specific situation. Learn the risks and rewards before entering any position. Be proactive, and avoid being a victim of the market volatility.
 
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If you have comments, questions, or suggestions, contact Bryan Doherty at Total Farm Marketing. You can reach him at 1-800-334-9779, extension 300.

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.

The Link Lonk


June 04, 2021 at 10:17PM
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The corn market is at a crossroads, analyst says - Successful Farming

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