Analysts: $3.50 Corn May Be Too Cheap, But $4.50 Corn Could Be Months Away

July 11, 2016 05:00 AM
Analysts: $3.50 Corn May Be Too Cheap, But $4.50 Corn Could Be Months Away

If you think that corn is too cheap right now, you’re not the only one.

Even the notably bearish Bob Utterback of Utterback Marketing Services admits that the market might have overreacted last week.

“I think when December corn got down to $3.50, I think we exceeded downside expectations a little too much,” Utterback said, speaking on U.S. Farm Report on Saturday. “It was a panic bottom, and I think we are bouncing back from that.”

“Corn at $3.50 is a little too cheap,” he added. “But $4 cash (corn), which everybody wants, is tough to get.”

Could prices rebound? Andy Shissler of S&W Trading has his doubts, at least for the near term.

“You had probably the better weather buildups I’ve seen in many, many years off something that could possibly have happened,” said Shissler, referring to the much-discussed concern about the weather impact of the shift to La Nina, which he thinks was probably premature. “It takes time to transition into that.”

Late summer weather could give corn prices a boost, but growers probably shouldn’t bet the farm on it. “There’s a chance it could trade back to $4 in a decent rally off August weather if it’s dry and hot, but longer term, I think you’re going way out again,” Shissler said. “I had to wait a year to market … a substantial portion of grain. I really didn’t want to do that again, but it looks like that is where we are headed.”

Utterback agreed, saying that he expects farmers to hold back given the current price environment. “We are getting to a point where farmers aren’t going to sell corn this cheap because it’s at or below the cost of production,” said Utterback, who doesn’t expect corn to hit attractive price levels until spring 2017.

But he warned growers to keep the big picture in mind, both in terms of the market and their own financials, should that come to pass.

“If we have dry fall or winter and we get to next spring, and everything is planted, the next time corn gets to $4 or $4.50, I think farmers will sell it, because banks are going to require it,” Utterback warned. “That’s going to be the trap. The next time we get short at $4.50 and farmers have moved (corn), then it’s going to be all hands on board if we have a weather scare next year.”

Managing that situation is going to take some advance planning, especially given the volatility in today’s increasingly electronically driven grain market.

“You’re going to have to give yourself a mechanism—and I think that’s a call mechanism against a cash sale,” Utterback said. “That’s the real opportunity coming up here in September and October. If we get a good fall low, I think you have got to think about how you are going to sell next spring. I know a lot of guys are worrying, ‘Well, I’ve got corn in the bin I haven’t sold from last year,’ and that’s the real dilemma, I think, that’s coming up.”

Do you think corn will hit $4 again this summer or has that opportunity ended until 2017? Let us know in the comments. 

Want more video news? Watch it on U.S. Farm Report.


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