TOP FARMER WEEKLY PERSPECTIVE 7/24/20 BY BRYAN DOHERTY
Finding a Bottom or More Downside
The corn market recently gave back most of its gains from a mid-June through early July rally when prices recovered 50% of their downtrend, which started in January. With December futures hovering just above $3.30, the question now is whether prices are finding a bottom or are expected to move lower. The near-term momentum for prices is down, yet the overall trend for the last three months is one of consolidation. Did December futures find its contract low at $3.22 in late June, or are prices likely to work lower?
Crop ratings at 69% good to excellent, and recent beneficial rains suggest that this year’s crop could be very special for many and likely a record yield for the nation. Yet, as of this writing, not a bushel has been harvested, and most of the crop is still in need of good weather for the next 30 to 45 days. However, a good-looking crop in mid to late July usually portends a big crop by harvest. The weather scare window is slowly closing. Producers who have been light on sales may find they have to either dump extra bushels at harvest or prepare themselves to pay storage. There is not much of an appetite for producers to sell corn at current price levels. Many feel the market could be trying to find a bottom as the harsh bearish implications of energy price wars, COVID-19 and good weather are all behind the market. Recent news has been supportive. A favorable acreage report on June 30, which saw farmers planting far fewer acres than the market anticipated, was a surprise. Is the bearish tide turning with this report? With December futures trading near $3.30, many feel the low is probably close. Bears, on the other hand, will argue that the acreage report helped mitigate a massively bearish tone to one which pulls the bottom side up for price projections from a month ago, which had many suggesting December futures could drop to $2.50. The new low target is near $3.00.
What variables (other than U.S. weather) may impact corn prices? Two thirds of the world’s corn production is produced in the northern Hemisphere. Recently, heavy rains in China could provide for a downgrade to their crop. Recent aggressive purchases by China may be signaling that China’s supply of quality corn may be limited. Internal prices for Chinese corn have been trending higher for months and are at five-year highs. Are more Chinese purchases from the U.S. on the horizon? Many believe so. The U.S. dollar has recently taken a nosedive, losing near 6.5% over the last two months. Typically, when the dollar is trending downward, corn prices tend to trade in a sideways or higher pattern.
The next 60 days are critical, not only for U.S. crops but European, Black Sea and Chinese crops as well. The weather market is still alive but does not likely have the bite it might have had two months ago – say, if a drought had developed. It is likely U.S. prices have factored in a mostly large crop; yet if yield reaches trendline projections or higher, the likelihood of sub $3.00 futures is likely. Will buyers start building inventory soon or wait? Technical traders may be waiting for a more meaningful signal before buying, and until that occurs, don’t be surprised if prices erode. Farmers holding old crop will be sweeping bins in the weeks ahead, preparing storage for new crop supplies. This too could potentially add pressure to prices. Feed buyers however should be on the alert. Prices are low enough that you should be making purchases. One suggestion is to purchase cash grain on 25% of expected usage for the next year. If prices move lower, add another 25%. It is challenging to pick a bottom; however, if you know price is well below the cost of production, recognize a low in price could occur at any time.If you would like help utilizing call options in your operation, call Bryan Doherty at Total Farm Marketing. You can reach him at 1-800-top-farm, extension 444.
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.
Author
Bryan Doherty