Corn Market Poised for Technical Break

August 27, 2010 11:59 AM
 

 Corn futures prices seem to be poised for a run up in price if technical considerations are any indication, says Jerry Gulke of the Gulke Group and Top Producer’s Market Analyst.  

Technically, Gulke says the market appears to be setting itself up for a strong technical move, similar to what did in 2006-07. Even with this price move, however, the run up may not mean extra money in the pocket of cash grain producers.

"I’ve said for a couple of years now that $4.50/bu. corn can’t be used by anybody. The livestock guy can’t feed it profitably and the ethanol guy can’t use it and keep up. Now we’re seeing corn $4.40/bu., but basis is so terrible any cash buyer is buying it for what they were buying it for back when we had $6.00/bu. corn a couple of years ago."

Field reports will likely be dismal for the early part of the harvest period as he expects farmers to enter the fields south of Interstate 80 first this fall. "We have the bulk of our harvest ahead of us and we’re rallying right into that face of an onslaught of a 13 billion bu. harvest. It’s kind of like what we did in 2006 when we said, ‘this can’t be.’ But it is."

I guess I can’t argue with what the market is doing, but there is still a lot of volatility. This week we dropped like a rock on Monday and turned around and gained it all back to where we aren’t much different than last week.

For protection in the market, Gulke says the first thing he looks at is the spread from September ’10 to May or July ’11. "There’s about a 40 cent difference on the futures market. As I understand it, barge and train freight is pretty well locked up until late October or November. So in other words, if somebody bought something and wanted to get it delivered by November 1, they probably couldn’t do it."

 

That big carry, if famers can afford and have capacity to store the grain, could add at least another dime to their bottom line by May. Perhaps more if they can hold it later into the marketing year. If a basis rally happens, he expects that to happen after January 1, 2011.

"You could see a 40 cent carry into July or even May, and then another 25- to 30-cent basis carry. So you could see cash corn go up another 70-cents a bu. from here to there, unless that’s already applied. The question I ask myself at $4.00/bu. cash corn now, "will there be buyers at $4.60 bu. next July?’ That’s about where I can price it right now in my area, so this is going to be a year when on-farm storage can really count." 

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