All About Profit
The carry in the corn market is offering almost $1 per bushel profit on the 2010 crop, given the lower costs of production, figures Justin Kelly, president of eHedger. "We moved to 40% sold using hedged-to-arrive contracts on the run-up” to about $4.40 in December corn futures and more than $10.20 November beans.
Kelly believes there is downside risk: "We expect more corn and bean acres in the U.S.—2 or 3 million from wheat acres that weren't planted and 2 or 3 million coming out of the Conservation Reserve Program.” In addition, he expects higher yields as better margins allow growers to increase inputs.
"Market players have been buying contracts in expectation of higher prices when the index funds buy an expected 50,000 to 100,000 contracts in the first half of January,” he says. "The net effect of fund buying may be disappointing, leading to a price slump.” —Linda H. Smith
Key Market Factors
> Funds will buy in early January
> Big USDA reports coming this month
> South American crops look good; could eat into U.S. exports soon
> More U.S. corn and bean acres coming
Click here for the Adviser Track Records table (Percent Sold and Market Value on Dec. 1, 2009)
Corn: Cream of the Crop in 2010
When it comes to prices, corn has the most favorable fundamentals, according to Erin FitzPatrick of Rabobank's research group. She cites steady ending-stocks levels; strengthening crude oil prices, which are strongly correlated with corn price; and improving livestock margins. —Linda H. Smith
Dollar Strength, then Weaker Again
A small appreciation in the dollar during the next few months is likely as the U.S. economy recovers faster than some others, says Nariman Behravesh, chief economist for IHS Global Insight. "Overall, the downward pressure on the dollar will continue,” he adds. The dollar is likely to depreciate most in relation to some emerging market currencies (especially those that don't control their currency). "Besides the dollar, many other developed-country currencies have been declining on an inflation-adjusted, trade-weighted basis—this is especially true of the yen. Despite being fixed relative to the dollar, the Chinese renminbi is sharply down against the euro on a real trade-weighted basis,” Behravesh says. —Linda H. Smith
Be on Your Toes This Month
Get ready for early marketing opportunities in 2010, according to analysts at the Farm Journal Media Marketing Rally, held in Chicago in early December. At the historic event, 16 leading market analysts joined together on one stage to discuss pricing strategies.
"By mid-month, you will have your final stocks reports, final production reports and a good idea of South American production. As producers, you have to be on your toes,” says Brian Basting of Advance Trading.
"I think the whole market is going to start to unfold in January,” says Bill Biedermann of Allendale. Biedermann points to USDA reports and South American production results, as well as the fact that funds may start to lift.
Richard Brock of Brock Associates believes that soybeans will rally this month but corn may have already hit the top. "There will be a big acreage battle in 2010,” he adds.
Michael Florez of Florez Trading has some simple advice for farmers who want to improve their marketing skills: "Get educated on the markets and learn how to participate.” —Jeanne Bernick
Top Producer, January 2010