Grain markets can drive you crazy if you live with them long enough. But sometimes the market does what it's supposed to, at least for a little while. Don't expect that serendipity to last because now comes the hard part. Corn could head in either direction as the growing season takes hold. The key to managing this uncertainty is to know what your risks and rewards might be.
I can't predict which way corn will wind up. But my forecasting model spells out what might happen to prices.
Following these guideposts can point out some opportunities, at the least. That's why I make sure to track seasonal trends. The one I've been talking about lately appears to be right on schedule: the tendency for December to make at least an interim top in the first week of April. Despite a bullish interpretation by USDA of its March grain stocks data, the market spiked higher and couldn't hold. The market didn't really break down, and likely won't yet. There's still too much uncertainty about what lies ahead. But taking advantage of these trends can take some of the pain out of marketing.
My supply and demand table this week outlines two paths. One assumes USDA's Prospective Plantings estimate holds, with average yields. This isn't really a bullish scenario – if weather hurts production again, prices are obviously going higher, probably much higher. But a 13.5 billion bushel crop would only increase carryout a little. Stocks wouldn't be terribly tight, but the juice added to the price curve from fund buying over the winter could stimulate rallies to the $5.45 level or better, where there's a lot of potential chart resistance.
This outlook assumes old crop stocks tighten more, likely due to better feed and ethanol usage. I haven't plugged USDA's big increase in exports from April 9 into my forecast yet, though recent sales and shipments are headed in the right direction. So, beginning stocks for 2014 could be smaller yet.
Every little bit helps as long as production doesn't go up too much. And that's why I recommended being 35% sold by this early April rally. There's plenty of evidence to suggest USDA was too low on its initial acreage forecast. And, if weather is favorable, farmers will keep planting corn. If 90% of the crop is planted by the third week of May, seedings could approach 93 million acres. Add in a yield bump of just 5%, and production goes up to 14.4 billion bushels, enough to swamp even robust demand. Average cash prices would run around $3.50 a bushel.
To read the remainder of the report, download the .pdf document 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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