December corn is trading above $4.50, a contract that produced a $1.00 rally in a month’s time. The price surge is coming with mixed emotions as farmers, grain buyers and more are both celebrating and despising the bullish move.
So, why is the rally so hated? Tommy Grisafi of Advance Trading said it’s because so many in the industry didn’t see the bull run coming, especially when advice was given for farmers to forward sell and catch the carries in the market.
“Now have a farmer who's forward sold into a market and they may have produced no bushels; It's a horrible situation,” said Grisafi. “You may have a farmer who got involved in a managed bushel program, accumulators double up, they can't explain what they're involved in, all they know is the elevator saying they own this much corn at $4.24 and $4.40, corn is a $4.50 bid, and they have zero planted. That's a problem. That's why it's hated.”
Grisafi said in a drought year like 2012, farmers at least had some crop to sell. This year, some farmers are looking at fields that won’t produce a crop at all, which means they not only can’t capture the higher corn price, but they have contracted bushels they won’t produce.
Some elevators and grain buyers are now offering a corn bid of $5. Darin Newsom of Darin Newsom Analysis said $5 corn futures aren’t out of the question either, especially when you take a look at corn’s long-term monthly chart.
“From a technical perspective, I think we can easily get there, and I'm not one that usually says that,” said Newsom. “We've cleared some overhead resistance, we've still got all the momentum from both sides of the market, and so it looks like it might want to make a run at $5 at some point, because there's just really no reason for us to not go there at this point. “
Newsom cautioned the factor that could change the momentum would be if the spreads add carry back on.
“That would tell me at the other side of market, commercial side of the market, they're going to let the non-commercials run for a while, but they're going to start selling into it,” said Newsom. “When that starts to happen, sooner or later, it flips it back around.”