Both the bull and the bear have a good argument!
Jun 07, 2010
The bulls are hoping for a seasonal rally while the bears are hoping for a rally to get catch-up sales in place. It’s been my experience over the years when everybody is wanting a move to occur the odds are significantly reduced that it will occur as everybody wants.
The bulls have some strong arguments.
- While rain makes grain, too much rain actually hurts the crop and does not allow the crop to grow. Many times over the years the old timers suggest you go from too much rain to too dry. This is a worry for the market as we move from El Nino to La Nina.
- China has bought some corn and the premium still seems to be very stong in favor of buying U.S. corn. The latest numbers suggest there is over a $1.20 advantage to Chinese buyers to buy U.S. corn at the Chinese ports. We simply don't know right now how much it cost them to to get tot he interior. "Talk" is the U.S. is still a very attractive buy.
- The historic seasonal favors price strength from Memorial Day into late June to early July.
- The BP oil spill could lead to significant regulation on deep well oil drilling. This “could” push the administration to supporting more domestic production of corn Ethnaol.
The bears have some strong arguments as well.
- Every year some part of the U.S. has problems but overall the crop is in good condition. Rain and heat make a great crop and the potential to exceed 162 bu. per acre and 42 bu. per acre is still very good for corn and beans, respectively.
- The European debt situation is not going away but is going to spread all over Europe and lead to stagnate global demand prospect for most of 2010 and well into 2011. Bottom line: demand prospects most fundamentalist are using is way to high. Stocks will build for both corn and beans as we move into 2011.
- In regards to corn we still have a very big level of old crop corn in farmers hands. The corn is in poor condition and must be mixed with new crop. The basis will be coming under major basis exposure in August to Oct. The cash market will subsequently bull down the futures market even if demand prospects long term look to improve.
- Technical overhead resistance is very strong for Dec corn at $3.92 to $3.96 and November beans at $9.35 TO $9.50 level.
In summary: I would suggest the bull’s time to shine is now. If they can’t get this market moving by the end of June, I would suggest the bears will take over and drive it below the cost of production this fall. This will be the time period when feed buyers and anybody wanting to speculative own corn and beans should be getting extremely aggressive in position.
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