January corn reports offer something for bulls and bears
By bull spreading the old crop and new crop futures contracts, traders demonstrated their concern about a rise in corn prices through the spring and summer as well as some confidence that supplies would rebound with the 2013 crop. Should planted acreage in 2013 approach 99 million acres and national yields return to near trendline levels, this confidence would be well-founded. In such a scenario, ending stocks for the 2013/14 marketing year could comfortably surpass 1.5 billion bushels. However, if the drought continues across a large area of the Corn Belt in 2013 and yields are significantly impacted, old crop corn prices will rise as the market tries to increase the carry-in supply for the next marketing year to offset 2013 production shortfalls.
What does this all mean for corn sellers and buyers? In two words: uncertainty and volatility. For old crop corn sellers, last Friday’s reports re-ignited the bullish sentiment for old crop prices and were a reminder that much of the sell-off for the past month was a result of noncommercial (index fund) selling. So, corn sellers should be able to exercise patience for the market to retrace its losses and target the $7.40-$7.50/bu area for additional sales.
Similarly, sellers of new-crop corn will also likely find patience to be a virtue. Even though early-spring projections will likely call for 98-100 million acres of corn to be planted this year (which will pressure new crop prices), at some point during the growing season there is likely to be enough of a weather market ‘scare’ about drought to provide good selling opportunities.
For corn buyers, the procurement strategy that has been discussed in past columns seems to hold: buy one-to-two months of corn needs on breaks in prices (as we’ve seen in the past month) and buy only hand-to-mouth needs when the market has a bullish infusion of information (like following Friday’s USDA reports).
The information in this report is believed to be reliable and correct. However, no guarantee or warranty is provided for its accuracy or completeness. This information is provided exclusively for educational purposes and any action or inaction or decisions made as the result of reading this material is solely the responsibility of readers. The author and South Dakota State University disclaim any responsibility for loss associated with the use of this information. There is substantial risk of loss in trading commodity futures contracts and traders should consult their brokers for a full disclosure of these risks to determine whether such trading is suitable for them in light of their circumstances and financial resources.