Corn Unable to Stay Positive on the Day
Aug 05, 2009
The corn market was higher on project (a) on expected follow through strength in outside market action. The bulls however were not supported by the outside markets. Equities were down, dollar was up and overall the commodity sector gave back what it gained over the last couple of days.
As the day progressed, the corn market got hit by expectation that corn production would increase according to a leading market consulting firm that’s closely watched by the trade. While there have been some 160-bu. average yield projections, I believe it’s much better for the trade to focus on a yield average between 157 bu. and 158.1 bu. The August 12th USDA Supply and Demand report is going to reflect the potential for a bigger yield this year but should also show at least a 1-million to maybe 2-million acre reduction. I strongly believe if we don't have a September frost, this crop is going to grow into January!
This combined with reduced livestock demand but growing ethanol and export demand set the stage for some confusion on exactly how high the market must go to effectively ration usage. I continue to believe the tone will be one of uneasy until the first of September. I would suggest once we get past the second week of September and forecasters start to suggest the risk of frost is declining the market will start to retreat aggressively to the recent lows.
If this was not concerning enough, I would suggest the recent bullish expectation on the economy will have run its course by early October. As we start seeing a continuation of poor consumer income growth and persistent high unemployment the outside market will lose much of their bullish impact as we move into winter. Additionally, while it’s not on the front pages right now, one has to be worried a little if the government regulators decide to reign in the size of trading funds it could lead to some real liquidity problems just when we need the speculative longs to be buyers.
Bottom line: We believe we can build a strong case for the high in corn to be in place well before the combines start to run for corn and beans. The period of maximum upside price risk is between now and the first part of September. We strongly encourage producers to take advantage of this rally and sell the carry that exists in corn. We strongly discourage putting any corn and beans in the bin unpriced and hoping for a 2007 or 2008 style rally into spring of 2010.
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