The government report last Friday did one good thing for the market. It took away the fear that the market was going to fall below $4 in lead-month corn. Today the market has seen a decent short covering rally, but it should not be expected to move much higher.
To move lead month Dec corn above $4.50,
- We will first need confirmation that the crop is getting smaller rather than the expected pattern of getting bigger.
- Corn exports will have to exceed expectation. The key is China; how much are they going to build in their reserves? The hope is high they will stock pile, but why do so if the U.S. farmers are willing to hold their crop, and prospects are good for solid acreage above 93 million next year.
For some time we have felt the market was going to be range bound. This report does nothing to change that expectation. We expect a moderate rally into December as the bin door shut and harvest pressure stops. Then the need for cash flow sales brings inventory into the market between January and March. I would not be surprised to see a double bottom in the lead month charts.
In our opinion, the real upside potential starts in May when we see how many acres get planted and what weather pattern(s) develop. We expect the bull spreads will have some moderate recovery during this time.
In summary, we see no reason for 2014 prices to explode unless we see a significant weather event. We want producers to continue to sell rallies in the deferred contracts and then manage the spreads and sell puts to enhance the trade. Next year is a year to simply get through with the least damage to the bottom line rather than treat it like a home run year!
If anyone has questions and would like to discuss marketing strategies, call Bob or Laura (1-800-832-1488). We will also try to answer questions in upcoming blogs and we welcome emails to firstname.lastname@example.org or email@example.com.
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