TOP FARMER INTELLIGENCE – Weekly Perspective by Bryan Doherty
In June and July, the contrarian view in the corn market was bearish. Never has the marketplace experienced such a late planted crop, and perhaps never was the argument more friendly for corn prices to move higher. December futures bottomed on May 13 at $3.63-3/4 and topped on June 17 at $4.73. Prices trended in a range of about 50 cents until mid-August before swiftly moving to new contract lows, erasing all the spring/early summer gains. It seemed nearly improbable that so many things could go wrong (bearish) for corn prices, yet they did. Improved weather, ethanol waivers, and negative USDA reports all changed the outlook practically overnight. A contrarian view would have been to position defensively. To date, the contrarian view from the summer rally was a big win, yet the story for corn prices may not be over.
As harvest gets underway, the conventional view now is that this year’s crop wasn’t a disaster, demand is not strong enough, and trade issues will continue to loom as a wet rag over the market. While all of these may be true, the reality is that corn prices have dropped $1.00 a bushel, over 20%. In theory, lower prices should equate to a higher quantity of demand. Basis levels continue to show strength, indicating a lack of farmer selling, a lack of corn supply, or perhaps both. A strong basis could be representative of the market recognizing that this year’s late crop could mean a void of up to a billion bushels normally available to the marketplace in more normal year, but will be delayed this year. While that argument may have merit, the strength of basis could be indicating perhaps something much different. Perhaps there just is not much corn left over from last year. Yet, carryout (supply from 2018 crop as of August 31) is projected above 2.4 billion bushels. So, where’s the corn? Again, the question; did the USDA reports reflect overestimated production in recent years, underestimated demand, or both?
The contrarian view now is to have a friendly price bias. The corn market seems whipped and apparently content with harvest getting underway that prices can’t rally. Yet, even the most bearish traders would have to admit there are millions of corn acres at frost and quality risk. Test weight will be a big factor in determining final yield. Harvest is also likely to be strung out over several months. The concept of business as usual (record crops, growing carryout, and huge piles stored on the ground at harvest) is much different this year. The cash market seems to have recognized this, however, managed money has not (at least not yet), as funds stay aggressively net short futures despite a lack of fundamental reason to be a seller. The contrarian view (versus business as usual) is suggesting end users have a second opportunity in four months to secure inventory at good value.
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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.