Published on: 17:04PM Oct 05, 2009
The corn market on project a broke to support and then short covering came in strong today. It looks like some of the bears decided to take profits before the October Supply/Demand report. My concern is the bulls are trying to buy this corn market based on the calendar date but have not truly figured in harvest pressure. I will not be comfortable in suggesting a bottom is in until we are beyond the November Supply/Demand report and the harvest is close to 70% done.
The big issue that’s going to keep strength under this market is the level of crop loss due to the lateness of the crop. With the frost coming in the second week of October many want to argue that the crop is not getting bigger but in fact could surprise everybody with a crop below expectation.
Essentially, everybody is talking their position right now. If you are sold, you are looking for new lows and if you are unsold or long you are looking for the lows to be confirmed. Right now I’m content to simply sit back and allow the market to work. I’m not especially bearish for a move below $3.02 but equally it’s going to be very difficult getting lead month futures to stay above $3.50. The trend should be sideways to lower for most of October on harvest pressure.
The big questions coming up that I will be writing about over the upcoming weeks is “does one roll the hedge to capture carry and sell puts to enhance” or “does one take off the hedge and look for a flat price rally to improve the hedge”. I’ve been going back and forth on this one. My lean is that we are going to have a distribution bottom with limited upside potential beyond the $4 level in July 2010 corn. The risk I see is with big supplies being held by producers is once we assure planted acres next spring lead month futures could fall to the $3 level. So selling the carry has a lot of attraction for me at this time. The issue is will demand growth and inflation trump supply?
I would be interested in your opinion on what producers who have sold the inventory should do. Should the roll or liquidate? Send your comments to [email protected].
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