Grain Market is all About Supply!
Jul 20, 2010
Today’s sharp price break is the bad part of weather markets. We have seen the December corn price retract back to the technical support of $3.92 to $3.96, which is about a third of the $3.45 to $4.10 price move. If the market is going to go higher, one should not expect much more than a three-day break.
Its now all about supply. How many acres have we lost due to too much rain? Second, will the good areas offset the bad areas? Crops around me are looking good so it’s may be difficult to be objective but overall I’m growing more confident we will not drop yield below the 161 bu. level like the bulls are arguing but neither will we go above 166 bu. level like the bears are suggesting. This suggests ending carryover in the 1.2 billion to 1.35 billion range. It’s adequate but could become tighter if demand exceeds expectation.
Bottom line: If the bulls can’t push their advantage in the next 5 to 10 days, I believe they will take a break and we will see a seasonal decline into September. As for downside risk, it’s currently very difficult for me to argue a low below $3.45 in December corn but equally very difficult to argue much above $4.20. Long term I still believe the December 2011 contract must attract at least 3 million to 4 million more corn acres. Some will come from wheat but a lot may come from beans. To do this December 2011 contracts should have a strong price move up in the March to May time period into the $4.50-plus level.
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