Why aren't corn prices dropping? In most year's the weather market would be the major player in the market right now.
Sure it's been wet across the Corn Belt the past two weeks. Planting has slowed, but it's still pretty good weather for growing corn. And with 87% of the U.S. corn crop planted in Monday's USDA Crop Progress and Conditions Report, those delays shouldn't have a major impact on the market.
A New Demand Paradigm
The difference is there is corn demand we're not used to seeing, says Jerry Gulke, Top Producer Market Strategist and president of the Gulke Group.
"Under normal circumstances, pre-China and pre-Ethanol, we'd probably be going down 50 to 60 cents/bushel with this corn crop. So I'm thinking this new paradigm shift tells us that yes, it may happen, but I want to get that crop finished.”
The corn market tested previous contract lows for July this week and dropped to $3.53 ½/bu. That looks like it's going to be the low…at least for awhile anyway. (Visit www.gulkegroup.com
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"The market went down below there and said, ‘are there any sellers?' There weren't. That was the same area where China helped make the bottom a few weeks ago when they suggested they would buy 1.5 million bu. this year and 3.5 million bu. next year. Well, they weren't lying. China bought corn then and they bought again this week.”
New Crop Interest
Of particular interest to Gulke is the activity from China into the next marketing year. The Chinese not only promised they'd do that, it's already happening. The quick index analysis' show a bullish tone to the market. Gulke's not quite ready to say the market is there, but it's getting very close.
"There's a slow-momentum index that I use that takes a quite a bit of time for it to turn, but once it does it's awfully hard for it to turn negative. We're pretty close to the verge of doing that.”
"They have some drought in the non-ag areas. If it moves like it does in the United States, then it could become a concern. If they would grow a subpar crop like they did last year, it has to come from somewhere. We as producers don't care where it comes from. If they buy from Argentina, then they suck up all of the world's stocks and they have to come to us.”
Technical factors are likely the largest impact on soybeans right now. The market tested levels between $9.00/bu. and $9.07 bu. and it was unable to break through, he says. The big crop in Brazil is also keeping a lid on the markets, despite continued strong demand that could be stronger than we know.
"Some in the business think we're still underestimating the soybean demand for China that it could be 50 million metric tons. It wasn't that long ago when were arguing whether it was 42, 44 or 46 million metric tons. If they're doing that in meal and protein, all of us may be underestimating what they may be taking in corn.
"If we get a good crop in soybeans, I think the market will try to discount a 300 to 350 million bu. carryover and see how cheap we can get beans into next fall. Then again if China is buy two or three million more metric tons, that's another 100 million bu. that comes out of the market place.”