Why is December corn down?
Apr 13, 2009
Today was one of those wet, soggy overcast days in central Indiana where you wake up, look out and really want to simple roll over and stay in the warm bed! The crops are not getting planted in the Midwest just like our weather firm has been suggesting. The weather pattern is expected to keep planters at bay for most of April and early May and along with strong exports today, one would have thought the market would be surging higher.
So why is December corn down, off the $4.351/2 high of last week to today’s low of $4.141/2 or 21 cents which means for every 100,000 bushels of unpriced corn a lost value of $21,000 and the crops are not even in the ground! What gives?
Well I’m kind of scratching my head just like you. My only answer lies in the outside markets. The Fed last week said the economy was going to continue to decline for next six months with unemployment going up. The stock market shook off this bearish news last week and moved higher. Today is different, at one point the Dow was off over 100 points but midday it recovered, and the bond market surged back. It would suggest concern is growing that another economic stimulus is going to be necessary or the fed is going to continue to keep interest rates historically low. In a nut shell it seems the market is saying for grains demand is a bigger concern. Essentially, the vote seems to suggest unless we have an actual confirmation of acreage shift from corn to beans the market is not interested in moving higher.
This would imply we are going to have to look at the calendar very carefully for trend direction in both the corn and beans. While I’m not getting my rally now as expected it does suggest if the wet conditions continue into the second week of May the market could dramatically shift direction and intensity for corn and beans.
Because of this uncertainty I continue to strongly support any sales that are being implemented during this time for corn and beans be done in the form of long puts rather than cash or futures. My intent will be to roll the puts into futures or cash sales as we get into the late June to early May.
Bottom line: I want to get a floor in place on the pre-planting highs because of my long term concern about the negative economy and big producer cash holding position. I will move from a defensive selling posture to an aggressive position as we move into the late June to early July pollination weather scare time period.
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