Corn Market Gets Second Chance Rally on Weather, But How Long Will It Last?
Corn was the price leader this week with a strong recovery of nearly 50¢ on old crop and 35¢ on December new crop. Was it a relief rally or a weather rally?
Jerry Gulke, president of the Gulke Group, says the corn market rallied for both reasons, but the charts signaled a recovery last week. In the face of net cancellations of old crop corn in the weekly export report, December corn took out the $5 level, while July sliced through $5.50 support and then the market reversed. Gulke says it was sparked in part by a change in the weather with a high-pressure ridge bringing a dry forecast to much of the Corn Belt.
“I look at it as saying when markets do what they're not supposed to do. They didn't go lower. They went higher, and it was weather that led the way, “he says.
Analysts will closely watch the model runs after Memorial Day, which will determine the next direction for the corn market.
“This is the first week of a weather market in what normally is about four to six weeks,' he explains. "Tt's odd that we made the lows this week and last week because last year we were making the highs in grains in May. We're just the opposite of last year. Yet weather markets and Mother Nature still govern it.”
To keep the second chance rally going will require bigger weather concerns or some other major catalyst.
“USDA says 2.2 billion bushels if everything goes OK," Gulke says. "If it doesn't go OK, what does it take to get the grain back up to $6 or $6.50? Some think we're going to see a reduction in our total production of maybe 300 million bushels. That would take us down to under 2 billion again to 1.9 billion.”
At that point, he says the market would be concerned enough about what will happen in late July and August when yield is being set in the corn or if we have an early frost.
Have a Plan
Volatility will be high the next few weeks in the grain markets, so Gulke says it’s important to have a plan. When the market reversed on bearish news, he says that was a technical signal a short-term bottom was in. That was when they advised clients to lift their hedges and cash in some of their profitable positions.
“I'm down to $4 on corn. I’ve got time ahead of me to wait for a weather market somewhere down the road whether it's June, July or August," Gulke explains. "I did get myself totally out of the market, out of the hedges I had, and told our clients to do the same.”
He says now they are taking a wait-and-see attitude.
