Experts Provide Insight to the Corn Market

June 16, 2011 09:21 PM
 

After one of the slowest planting seasons on record, the U.S. corn crop is finally in the ground. The abnormal planting progress of the last few months has sent the corn market on a crazy roller coaster ride.

Flooding, droughts, ethanol support, the value of the dollar and a recovering economy have all factored into corn prices, making it even more difficult to predict the future.
 
“I have no idea where price are headed,” says Joe Victor, Minneapolis Grain Exchange market analyst. “I do not know how to predict weather, earthquakes, economy, etc.”
 
One thing is for certain, for farmers to maximize pricing opportunities; they need to be aware of the major factors affecting the market.
 

Why We Reached $8

Over the past few months, the corn market had several reasons to push prices higher, says Justin Kelly, EHedger president.
 
These include:
  • The disappointing corn production from the 2010 created a "tight" carryout for the 2010-11 crop year. 
  • Strong energy prices have translated into strong ethanol demand.
  • Crop failures in Russia and Ukraine last year caused those countries to cease exports of wheat. 
  • Chinese feed demand put extra strain on the U.S. corn market via exports. 
 
“These strong fundamentals called for the U.S. to bid for corn acres for this upcoming growing season,” he says. “As we went through the planting season, wet weather hindered some of the gains that price accomplished in buying corn acres, which caused the market to rally even further to ration demand and try to buy what corn acres it could.”
 
Now, Victor says we are leaving the planting phase and entering the production phase.
 
“Key drivers are the weather and world economy,” he says.
 

A Weather Market

Even with all of the unusual and trying weather of the spring, many weather experts are expecting a cooler and wetter summer.  
 
QT Weather Meteorologist Allen Motew says the cooler pattern predicted for this summer should be good news for corn production. “Normally, if the corn crop is planted in a timely manner, this would mean favorable yields.” During July pollination, corn should be spared by extreme heat, which is optimal for any late-planted crops.
 
Looking near-term, many planted areas are receiving rain. Motew says spring rains will remain active across the western and central Corn Belt.
 
These showers are a welcome sign, for many producers. “Intermittent rains are now viewed as good for grain and oilseed production,” Victor says.
 

Will Corn Prices Continue to Climb?

Howard Tyllas, president of Futures Flight, says reaching corn prices higher than the already record ones recorded this spring will be difficult.
 
“How much higher can we go when July corn is already above the 2008 all time high?” he asks. “At $8 it is already past the 22 mile marker in the 26 mile marathon, and every mile gets tougher to run.”
 
Tyllas says producers should remember that the market is an auction process. “Whatever the ‘buyers’ are willing to pay, they are looking to sell it at least $.50 higher, and the risk could be greater than the gain.”
 

All Eyes on June 30

The next big batch of crop production information will hit the market on June 30, when USDA releases its acreage and grain stocks reports.
 
Kelly says his team’s analysis showed a very high incentive to plant corn versus soybeans and also versus prevent plant payments even to date. So, for now, the final acreage numbers are just a guess.
 
The June 30 reports will provide us with more answers, Kelly says. “We believe corn acres will be higher than many analysts have been predictions.”
 
 
For More Information
Read Kelly’s EHedger Report blog.
 
Read Victor’s MGEX Research blog.
 
 
Hear the latest market commentary on AgWeb Radio.
 

 

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