Published on: 18:45PM May 17, 2010
The commodity market in general is falling on pressure coming from the rising dollar and overall concern about the European financial crisis. Couple this with the concern that China is actively trying to slow down it’s economy so inventories don’t build up as it waits for the U.S and European situation to sort itself out, you have a lot of economic uncertainty in the market. The final factor that’s continuing to have impact on the markets is corn farmers still have a lot of old crop corn to move, along with a crop out in the field that’s starting to germinate. Granted there are some real production issues with parts of the Corn Belt such as Missouri which is exceptionally wet and poor stands, plus some of the replant due to frost in the northern Corn Belt. The situation however on the supply side is we are starting the crop off very good. The big concern on everyone’s mind right now is when we get into summer, will the rain simply stop and burn up the crop?
As for the technical situation: The market has been trading in a very established trading band since February. We have a very defined overhead resistance coming in December 2010 corn at the $3.95, $4.05 and $4.12 level. One would have to anticipate some level of short covering if the market were ever to close above these levels after Memorial Day. Equally, the market is nearing very good support at the $3.65 to $3.75 level.
So what does it all mean? All the bulls’ expectation for exploding demand is being tempered and the potential of producing another big crop is improving daily as the crop gets planted and off to a good start. Granted, we still have the seasonal summer concerns to worry about but once we get past the next 45 days we could be slowly declining into a negative return level for most corn producers.
Bottom line: We are actively very sold on 2010 and will be recommending a defensive position for 2011. Once 2011 moves below $4 we are essentially out of the hedging market.
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