It now appears the old crop corn supply is being trumped by concern about delayed spring planting. I believe today’s rather strong price bounce is a confirmation that the winter lows are in.
The issue now is how much of short covering rally and speculative buying bounce will we see? In regards to today’s market action, I have to say that more than 5 to 8 days up is about as long as one should expect before absolute new buying support has to come into the market. In regards to July corn we are 13 days off the Feb. 26 high, but only two days up from the low. I suggest the rally in July corn should now find it difficult to exceed $3.95.
To move corn above $3.95 I think we will have to see continued weather delay all the way through most of April with limited field work for most of the corn producing Midwest. While we are concerned, we have faith in the American farmers that, if given even a small window of planting opportunity, a lot of this crop will be planted suprisingly fast.
Strategy: We have recommended feed buyers get their feed needs bought through July. If corn is in good condition, we suggest holding off on pricing until late May to early June. It should be pointed out that our real focus, however, is on getting producers motivated to get a floor under 100% of their expected inventory when they can lock up a 150% to 200% return over all fixed and variable costs [in relation to USDA data]. We also suggest for corn that this must start at $4.15 and be done by $4.35. In our opinion waiting for a retest of the January highs at $4.50 is very foolish. If the market were to hit that level, we would suggest using the strength to sell expected 2011 inventory.
We are still impressed that the soybean market is holding together in light of the big South America crop. There are rumors that many South American producers are following the U.S. farmers’ strategy of holding off on selling inventory at harvest in favor of higher prices. If this is true, and we are not sure South American producers can store like U.S. farmers, all it does is possibly distress the market more as we move into late August.
Strategy: We recommend feed buyers only buy enough meal to get to the July time period. We are still concerned that a major downward price risk exists in soybeans as we move into the August to October time period. Therefore, aggressive buying of meal is slated for that time period. We believe producers needing to make “catch-up” 2010 sales should use some form of put protection in the Nov contract if it gets close to $9.50.
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