A rally of almost 80 cents a bushel is nothing to dismiss lightly. Neither are charts starting to turn bullish, nor a 180-turnaround by big speculators. As a result, while I'm not convinced this rally is the start of a bullish move, I still think the market deserves respect. The question is, what's the best way to show that respect? For most growers, the answer is the same: reward the rally with sales, but know the implications of what you're doing.
Fundamentally, nothing has really changed. Yes, Ukraine was expected to account for around 16% of world corn exports this year, so events there demand attention. Corn prices there were rising before the Russians went into the Crimea, grain more than $1.10 a bushel in February as the economic situation slid in the country. The former Russian-backed government pretty much bankrupted the country, and anyone with corn held on to it as a hedge against inflation from their devaluing currency.
Chaos could make it harder for farmers to plant corn this spring, and moving it may be complicated too. But barring some type of devastation, production shouldn't be down enough to make a huge difference on U.S. export sales. It's important to note that much of the buying before the crisis deepened last week came from funds covering their bearish bets. The big speculators are net long corn for the first time since June. If that trend continues, buying can feed on itself as technical signals convince more players to add to positions. If it doesn't, the rally could fade quickly.
Charts don't go up forever without strong underlying fundamentals – at least in theory. Investors threw money at anything that traded before the financial crisis brought at least a little reason back to the market. Maybe irrational exuberance is ready for a comeback. If not, corn doesn't look like it has the legs to keep rallying. Yes, the supply and demand situation is better: Ethanol production is running 10% or more above last year's levels. And feed usage remains a question mark that will be answered with the March 31 stocks report. But unless Dec-Feb usage was exceptionally strong, or farmers intend to plant less than 92 million acres, it's hard to see how prices can rally.
To be sure, beans are strong, but corn kept pace during February enough to stay within a few bucks an acre on average in the U.S. Farmers will shift some land to beans to hold down cash flow and improve rotations, but not enough to radically change the price outlook, thanks to carryout that should still come in around 1.5 billion bushels in the March 10 USDA supply and demand update.
For more on this, download my weekly Corn Report using the link below.
Senior Editor Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Adviser. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.
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