La Niña Next Spring?
We are now in an El Niño pattern, which historically has little impact on summer–fall weather in the U.S. The next La Niña could start next April and last through summer 2012. That could raise issues, says Allen Motew of QT Weather: "The La Niña beginning in April 1998 ushered in a year of extremes. The second-driest April–July on record began in 1998 and dryness intensified in 1999." —Linda H. Smith
Investors Follow the Trend
Speculator positions in corn futures increased from a net short position of 67,485 contracts in the first quarter of 2009 to a net long of 132,563 in early June, points out Luke Chandler of Rabo-bank Agri Commodity Markets Research: "Then, it all turned around very quickly in June as prices logged a sharp retreat as the probability of a V-shaped economic recovery diminished. An estimated $2.6 billion left the corn market in under a month. This shift in market dynamics goes a long way to explain the 28% collapse in nearby corn futures in a little over three weeks." —Linda H. Smith
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Downside in Corn Prices
USDA's neutral-to-bearish July report implies the market will focus on weather and crop development for now, says Bryan Doherty of Top Farmer Intelligence. "Rain events in July and August could literally be worth billions of bushels to the corn market," he says.
"Until proven otherwise, farmers should stick with a defensive posture for their marketing. Strategy suggests staying short futures, or getting short, until downside resistance is violated on price charts," he suggests. "Put option purchases also could be considered for both corn and soybeans. The current trend is down and momentum could take prices still lower."
As the Track Records chart below shows, as of July 1, Top Farmer was among the heaviest sold, with 40% of 2009 corn and soybeans priced in the cash market through multiple small sales. Hedge profits help the average market price, particularly for corn. —Linda H. Smith
Key Market Factors
> USDA's acreage was higher than expected; how much wasn't planted?
> Will rains be timely?
> Livestock producers are hurting; how much will herds be reduced?
Top Producer, Summer 2009