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U.S. Corn’s Big Bad Wolf: Weather, China or Neither?

May 13, 2013
By: Nate Birt, Top Producer Deputy Managing Editor google + 
corn field

Coming off USDA’s May outlook for corn yields, the one thing market analysts agree on is that it’s too soon to tell how prices will swing this summer. One school of thought holds that worldwide production is at an unprecedented high, meaning American farmers need to beware of the possibility that prices will fall.

"They’ve already cut the yield on the corn, which I think may be a mistake to cut it this early," Mark Gold, Top Third Ag Marketing, tells U.S. Farm Report. "So potentially, even bigger yields. They increased exports on soybeans next year, 100 million bushels. I don’t see how they’re going to do that with China’s economy where it is. So I believe these world carryouts, the U.S. carryouts, are going to get bigger, and from new crop there’s an awful lot of risk."

On the other side, the wetness of the growing season so far has created plenty of uncertainty and might result in an uptick in prices down the stretch.

"The crop is getting smaller already because they’re knocking it down. Now we’re starting to get here a little later, especially in Iowa and Illinois," says Mike Florez, Florez Trading. "I would say that if the weather continues as it is, it’s just a little bit dicey, I think that you’re setting some lows and that you could take the market to new highs. You don’t know what the weather is going to be over the course of the summer. "

Growers concerned about what high production levels might mean for prices should actively manage that risk, Gold says.

"The risk could be down to $3.50 or $3.25 in this corn despite the high input cost," he says. " The market doesn’t care what the cost of production is to the producer, the market just cares about the price of the grain, and this market could move significantly lower. So on corn and beans both, we’d be looking at buying some put options to protect the downside. "

On the speculator side, demand appears to be strong while corn appears to be sitting on the low end of the price scale.

"We’re doing a lot of cash business at $7 on corn," Florez says. "What if corn cash went to $5? What kind of business would we do in that? The demand would chew it all up, is what I’m saying. I don’t think you’re going to have these big carryovers because we’re doing business at $7."

Get both perspectives by watching the complete U.S. Farm Report marketing roundtable discussion below.

Watch U.S. Farm Report marketing roundtable Segment 1:

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