Corn Market: World’s Largest Lottery, Information to Place Your Bet

08:42PM Jun 14, 2019
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The historic corn rally continued to show its head this week. A bullish breakout technically proved the market may not have been in highs just yet. Darin Newsom of Newsom Analysis said on U.S. Farm Report this weekend the next resistance level will be the April 2015 high of $5.17. However, there could be some ammunition to push the market higher; a price move that hinges on several production factors in the U.S.

“It’s just so much different than 1993,” said Tommy Grisafi of Advance Trading. “We lost acres to prevent plant then, and this year, we could be looking at 9 million acres of prevent plant. How do you start off with 9 million acres of PP, and over half the corn crop put in way historically late?”

The bullish price action is one that caught many analysts off-guard, and one Newsom thinks wouldn’t have happened without production issues in the U.S.

“Realistically, had we not had this weather scare, had we not had the South American drought a year ago, we'd probably be at loan rates; we'd probably see corn and soybeans, most likely wheat, all at loan rates,” said Darin Newsom of Darin Newsom Analysis.  “We've been bailed out, because we did have Mother Nature show her nasty side.”

Newsom said it’s a historic year in many ways, but also when you look at the charts, as there is no chart pattern that can give you an accurate comparison.  

“I don't necessarily believe in analogous here, because there's always something different and what's different this year; something that we've never seen,” said Newsom. “We've never had the technology and the science behind the seed, and at the same time had Mother Nature working this strongly against us. So, this will be kind of a groundbreaking year to see what yield and production actually turns out to be from a price perspective. And really, we're down to looking at long-term monthly charge to see what some of the more broad price objectives might be.”

Grisafi said the unfortunate factor is the rally is coming at the cost of production and people, as farmers in some states won’t have the crop to sell.

“This is going to be a great year for some people, and it's going to be a year that some can't come back from,” Grisafi said. “And that's just hard to talk about, and that's the hand Mother Nature dealt us right. Then you throw on the political front, that doesn't make it easier. Darren and I talked about technology, if Teddy Roosevelt had a Twitter account, and we're like, well, that would have been different. Things have changed, and you have to change with it. Farmers are the toughest people I know.”

Newsom said it’s an unfortunate situation, but reinforces the reality of today’s markets is “extremes” are the new normal.  

“There is no middle ground anymore. It's like anything else there is no middle ground, it's the extremes,” he said. “Wat's going to be interesting to see is okay, what happens if corn actually turns out to be 170 bushel per acre plus, then what? I mean, what does that tell us about the seed once it actually gets in the ground, regardless of how late it might be? I think it's going to be fascinating to watch and certainly something that we can now point to and say, 'Well, this is what happened when.'"

Grisafi said there have been historic moments in the market already that prove there’s no real cap on what prices can do.

“It was the Minneapolis wheat, I wasn't physically trade in Minneapolis, it was electronic, but we started that year at $5.00, and on the last day of the rally, it moved $5.25 cents in one day,” said Grisafi. “When they let off the limits of front month wheat,  wheat moved more in one day than it was worth the year before. So, when someone tells me or a customer calls, and they say 'my elevator manager says corn can't go above $5.00,’ I tell them they better call Chicago because someone's trading $8 calls over there and boy, don't they have it wrong.  There's this little thing called the Chicago Board of Trade where you can buy and sell things -  insurance policies -  and if you have an opinion about this market, place your bets, because this one is going to move.  There's nothing ever happens that new, there's just new people making the same old mistakes.”

“It's really the world's largest casino, but what you have to do is you have to go in with the best information available,” said Newsom. “Some of the simplest rules out there, one of the simplest, is just to ride the trend. Right now, no matter what chart you're looking at trends basically, it doesn't matter if you're looking at futures, if you're looking at future spreads, if you're looking at basis, it tells you what at least what the markets opinion is short term and in some cases long term.

What’s the best information at farmers’ fingertips today?  Grisafi and Newsom said a few factors are what should drive a farmers’ marketing decision.

“The best information the only thing that matters is what's happening at your farm,” said Grisafi. “Those are the only bushels you're going to get to deal with, so focus on yourself. Be selfish. What's going happen? If you have a bushel it could be worth a ton of money, so understand how to manage the risk and your bushels.”

“I disagree just a little bit,” said Newsom. “I would say the best information you can go in with absolutely you want to know what's going on your farm, you have to look at the big picture. What's the big picture telling us? We have the screaming uptrend right now, how long will they last? We have no idea. We have commercial buying coming in. How come? We don't know. But what we do know is that both sides of these markets, corn, soybeans wheat, they're all buying at this point. So you don't step in front of them. Even if you're one of those who got everything plantd and it looks great, maybe you do some pricing, but you don't go full-bore and say 'well, this is going to turn around, because my crop looks good.' So you have to be very careful about that. Basically just use the trends that are in front of you and ride along with them."

6/15 Markets Now AgWeb