While 2009 has not been as wild a ride as 2008, it has not been for the faint of heart. The spring rains and delay in planting provoked excitement in the market early. Now, the crop has recovered, USDA has pegged a major increase in planted acres and the economy has cooled off a bit—leaving us wondering, where is the bottom?
I'm working under the expectation that crop condition ratings are going to remain high, which will keep corn yield expectations above 158 bu. and soybean yield more than 43 bu. Beans have more potential for risk in August if the weather turns dry. This may spur a decent bounce starting in late July.
The corn market should be weak because of big supplies in farmers' hands and the generally good condition of the current crop. As a result, I expect a major low in corn in late July. As we move into mid- to late August, worries about growing degree days and frost will surface. If these concerns are combined with the potential for another government stimulus program and a weaker dollar, we could see a fall-to-spring price recovery.
Once we're past the key weather period, outside factors, such as the economy, will take center stage again. There is growing anxiety that the 2009 stimulus bill and current slant in Washington sent too much money to consumers and too little to businesses. Should the economy not improve and another round of government money be needed, defense and agriculture are prime candidates for cuts.
We should be nearing the final stages of a blow-off bottom. Hedgers should protect profits if December corn trades between $3 and $3.20. Feed buyers and anyone wanting a long-term sit-and-hold position should look at a long-term scale-down buying program between $3.20 and $3.
I would not be surprised to see beans rally before corn. We all know that August weather is more critical to beans than it is to corn. If the market was oversold going into July, it will be primed for
a technical price recovery. If December corn and wheat stay cheap, they will drag down beans. For November beans to get back to levels where producers want them, we need hot dry weather plus a solid sign that global demand is not going to weaken.
By the end of July, the wheat market should have most of its bearish fundamentals factored in. We have seen lead-month futures below $5. Harvest is over and supplies are big. I expect many traders will be looking for signs of a technical bounce. In fact, if wheat starts moving above its previous week's highs, I would not be surprised to see some fund buying. Please don't take this as an endorsement of being long wheat. It simply means that most of the price weakness is likely in the market. It's time for hedgers to take their profits and feed buyers to start getting long-term scale-down buying programs in place.
The hog market got a much-needed reprieve from the death sentence in June when the corn market broke. For many producers, this helped their bottom line, but, unfortunately, it's not helping them get back into the black. The major issue continues to be demand—specifically export demand. The industry will be holding its breath in the months to come to see whether swine flu resurfaces. Remember, it's often not reality that's important, it's people's perception of reality. If export buyers don't want to buy, we will still have too much pork product.
The cattle market continues to be a range-bound trading affair. It's not as bearish as the hog market because of better control on herd numbers, but it's equally affected by concerns about export demand. Establish a defensive out-of-the-money low-$80s put program in December cattle in case the flu outbreak occurs. Buy corn needs for most of next year and even 2011 if corn can be bought in December
below $3.05. If you buy this far below the cost of production, a long feed hedge will reap big dividends.
Sales Index Key
Excellent sales opportunity 10
Excellent buying opportunity 1
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- Summer 2009