The first time corn saw a “7” in front of its price was due to the pseudo energy policy that created the ethanol industry (demand). High prices lasted two months.
The next $7 was caused by crop shortages (supply) in 2011 and 2012. Both corn and soybean prices exceeded those of 2008 — but only for three months.
Much has changed since 2008 and 2011/12 (global competition, the end of open outcry, etc.). The market seems to have learned from history, and we might witness a repeat.
Corn prices (old and new crop) topped May 7 this year. Old-crop corn prices spent four months above $7. Continuous corn prices posted a massive reversal on July 14, as September came on at a huge discount.
Ethanol has been dealt blows via waivers, recent Supreme Court rulings and a negative political environment.
Corn showed price potential in December 2020 when it broke out of a six-year depressed price base (over-supply). The question of whether China was for real was answered with relentless buying, even in anticipation of 4 million to 5 million more corn acres for the 2021/22 crop year.
China’s intentions are skewed as they have expressed desire to renegotiate phase one, while the Green New Deal in the U.S. threatens agriculture.
LESSONS LEARNED
Managing price risk has been an objective of this column for 30 years. I define risk management as:
- Be as debt free as possible. I’ve been on both sides, and choosing my banker is better. Income tax isn’t a four-lettered word.
- A business plan doesn’t have to be complicated. I can determine my cost of production on a napkin in five minutes at the greasy spoon.
- Aim for a reasonable standard of living. The market doesn’t care what fills your big machine shed. The only green I require is the green left in my pocket.
Jerry Gulke farms in Illinois and has interests in North Dakota. He is president of Gulke Group, a market advisory firm. Disclaimer: There is substantial risk of loss in trading futures or options, and each investor and trader must consider whether this is a suitable investment. There is no guarantee the advice we give will result in profitable trades. Past performance is not indicative of future results.
