Continued Correction in Corn
Nov 25, 2009
This week we have seen option expiration, poor exports, and an outside day down on the corn chart which took out the previous 7-day low. In normal markets this would be considered very bearish. The problem for grains was the outside markets were generally firm until Thursday.
With the Tuesday hard correction in corn, we have now seen a 26-cent price move in lead month corn. This type of price movement is making it difficult for producers and speculators alike to want to implement and maintain positions for long-term. As one producer recently told me,"I know I need to do something, I just don’t know what."
My response to such comments is we are entering a time period in 2010 when conflicting fundamentals and technical action is going to make it increasingly difficult to have a clear picture of what is going to happen. So the producer needs to fall back to “why” he’s using the market. I would suggest for sellers it’s when you want to lock up profit and transfer the price risk to the market.
I’ve been suggesting to producers for the last few weeks that “good” profit is starting to develop for the 2010 corn and bean markets. It is my opinion that the agriculture market is not an industry that can handle “good profit” for an extensive amount of time. Either the high profits motivate more supply or the high prices motivate demand rationing or inputs costs go up. Bottomline: While the first half of 2010 looks good, the longer you go into the future the more the profit margin looks to be squeezed. This implies producers should be working hard to lock up input cost for as long in the future as possible and then focus on scale up selling to lock up profits. Since the basis levels are already starting to widen for corn and beans for 2010 this implies a futures or option strategy will have to be implemented.
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