Market tried to rally and failed!
Aug 25, 2009
The markets tried to rally but failed miserably as the increasing crop conditions and limited immediate risk of frost weighed on the markets. So where are we going from here? Is a major rally in store like 2007 and 2008 where we saw an average of 55% rise in prices from the fall to spring and rescued all the producers who stored the corn in the bin unpriced? I know corn and beans are a little behind and there is going to be some frost damage on some of the corn and beans but I really feel the risk is quite high we will eventually see a final corn yield above 160 bu. per acre and a bean yield above 42 bu. per acre. The only question is how much higher?
What this means is we are going to have a mountain of inventory this fall. Carry will increase in the market as the nearby contracts drop to the deferred especially for corn. As for beans I’m not completely convinced the spreads will be as dramatic. I would not be surprised to see the market stay in an inverted (no carry) pattern between the 2009 crop and the 2010 crop for most of next year.
Market Implications. We have the supply, now will we get the demand growth necessary to keep domestic and global supplies from building? We have been spoiled by the growth in ethanol and China usage from 2001 to 2008. What happens if the domestic and global economy has a second low in 2010 due to low private sector demand? If supply is up and demand is lagging it set will the stage for a protected period of price weakness that I believe most producers are not mentally prepared to handle.
Conclusion: Continue to be a strong seller of 2009 corn on any 10- to 20-cent rally and sell 2010 November beans on any 30- to 50-cent rally. Deadline is the mid-September USDA Supply and Demand report.
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