Are Corn and Beans Turning the Corner?
Feb 24, 2010
In general, the corn and beans markets are trying to turn the corner from a bear market started with the January supply and demand report. Today is 33 days off the old high, but more important 12 days up from the low. The problem is the 50-day moving averages along with RSI and SSTO indicators we watch are reaching not quite overbought status. We are going to need a fundamental event like a major change in the March supply and demand report indicating a significant reduction of inventory or continued concern about a cool, wet spring planting conditions to drive the market higher.
We are working on some research about profitability. While we are in the beginning stages of this research, one thing that has surfaced it how little time the market spends below a decent return on investment in corn.
This leads to a question: Has ethanol and China’s strong demand prospects in agriculture enabled U.S. farmers to make over 25% return on investment annually continue in the future? If this occurs how will the government react; will it start reducing the farm program safety net because it wants to reduce spending? This leads to the eventual concern: what happens in those years when short-term supply does exceed demand. How low will we have to go to clear prices through the system?
I believe it’s my job to help farmers/ranchers merchandise their production. The natural tendency of producers is to be bullish and I believe it is my mission to keep them grounded.
Conclusion: While we did see spectacular profits in 2008 above 75% to 100% over USDA projected data, it was the exception rather than a rule. If returns start to approach 30% this spring, we strongly believe 100% of crop should be sold to protect profit in both corn and beans when offered regardless of the concern about summer weather concerns.
Bob’s Upcoming Speaking Engagements:
Periodically go to www.utterbackmarketing.com and click on “Upcoming Seminars.”
February 2010: Anaheim, CA.
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