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Senior Contributor

Very Bullish Prognosis For Corn

Hello my friends in Corn land, since I wrote to you last month the market has made some really powerful moves, which is what I thought would happen when I posted my last missive. 

 

As you may recall, I wrote last month the following : "So I think this downmove in corn will come to an end during the next two months, finding a bottom in the old support area of $3.29 to $3.42, and in the second half of the year we should go higher." 

 

Well the market indeed performed as I expected, with the May contract bottoming at $3.38 and the July at $3.43. Since those bottoms were put in mid-May, the upswing that I thought we would see in price in the second half of the year has taken place sooner than I expected. As I also wrote : "As such, if you have hedged some portion of your 2019 production, I would take your profits and remove those hedges if corn trades below $3.45. It may look a bit mean down there, but I think if you hold on for a while, you will be selling your 2019 corn harvest for a substantially better price than the price where you remove your hedges. And the hedge profit will add on to whatever price you wind up selling."

 

Well for the producers, this was an excellent example of how a hedging program with good information can really help you increase your earnings. Recall, I had been holding a short position in corn from the mid-$3.70s which I liquidating at $3.45. And if you fdid the same, that 30 cent profit now adds to your income for 2019, which right now is based on a corn price in the July contrract that closed today at $4.04 per bushel. So if you had been on a hedging program with results similar to mine, your corn in the field would now be trading for $4.34, less whatever the dealer commission is against the futures price. Hedging makes sense if you have good advice or a good program thatg adequately predicts where prices are likely to go.

 

Going forward, there's a lot of good news for cornm producers. The trade above $3.9825 and the settlement above it on both a daily and weekly basis are very bullish signs, as the market has broken the downtrending price triangle that has been in place since June 2016. I will be very confident thatg the triangle is broken if the July contract closes on the last day of May above the aforementioned $3.9825 level. From here, I think the market will launch an attack on the last major price high which registered inb 2018 at $4.1225. If the market breaks above and closes above that level, its even more bullish a sign than what we have now. For it would indicate a move to test the old contract high from 2018 in the July contract at $4.45.  

 

Now look,m I don't want to get people all wound up and overly bullish, but from whagt I am seeing right now both fundamentally and technically, this corn market easily may surprise to the upside in a big way. From what I have read, planting of corn suffered this year from floods in the farmland, and as such, supply this year should be lower than in any of the last few years. The price chart is turning incredibly bullish, and if we break the levels I cited above, there is an out side chance we could see corn trqde above $5.00 a bushel this year. I don't want to get too obulled up right now because we still have some really rough levels to break above for a big rally to commence. All I am saying is that there is a strong potential that the present rally has a long way to go...which means that if you are  producer it may not be a bad idea to hold off on placing any of your 2019 crop just yet. 

 

I will be watching this market very carefully over the next few weeks, as should you if you are a corn producer. I would not be in a rush to sell just yet, I think we should see what happens for the next week or two and see whether the market can break above its last major high. If it fails there, there will be plenty of time to sell some of your current year production, so no need to panic. However, if it breaks above those old highs, sit back and enjoy the ride as it should be a nice move and spell some really good profits for this year.

 

For spec positions, I think you have to think about getting long if we break above the last major high at $4.1225. I have been hesitant about being long on the way up so far, but a move above that old high would tell me that we re moving to a new range that could top out with 5 handles. For the next week or so, I think there will be some correction back down, buit when that downward correction ends its probably goinmg to be a very good opportunity to get long. I would probably start buying in the $3.90s all the way down to the $3.80 level, looking for the market to test the $4.1225 level and then $4.39 above there. Its still kind of early to set exact target levels, but by this time next week they should become very apparent. The important take away is that the market looks very bullish overall, even if we have a pullback for a while in the immediate future.

 

Have a Happy and Safe Holiday Weekend !

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3 Replies
Senior Contributor

Re: say $4.12+ is $1.00 Lite

On the bull.

 

Truthfully corn should Never have bee much below $5 per bu Cash.

 

 Say July corn paper to $4.85 to buy say 5 million acres( June planted ) at harvest.

 

say Maybe 75 million acres harvested at say 150 to 155 yield avg nationally.

 

And there's a good chance of only 70 million harvest corn acres too in 19.

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Senior Contributor

Re: say $4.12+ is $1.00 Lite

Corn's problem has been too many farmers needing to plant on every square inch of their leased farms in order to make a living. The over production has kept a lid on prices for a while now. 

 

But this year, it seems that Mother Nature will reverse that paradigm and prices should do well.

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Honored Advisor

Re: say $4.12+ is $1.00 Lite

It`s like farmers have been in a straightjacket, the more we struggle, the tighter it gets.  But some made their chest and arms bigger when the jacket was put on, so they now have a little wiggle room.  Smiley Happy    The economics of farming with probably always be that way where every inch is planted, no shortage of greater fools willing to pay the prevailing rent to take their crack at it.    Which ordinarily be the way it should be, but everyone is just so crazy and ambitious these days.  Like that old "Name that Tune" show  "I can name that tune in 5 notes!"  "Oh yeah I can name that tune in one note!"   "Then name that tune!!!".  

 

I don`t expect corn to go wild heights because of ethanol, it`s strange seeing E plants shuttered like the one at Superior Iowa, but if corn hits +5 bucks others will follow suit...I`m afraid and then we`ll be right back at 2 billion carryover, even with lower production.    I know I know "RIN waivers"  but doesn`t ethanol have to stand on it`s own at some point?  I`m all for holding a club to Standard Oil`s head, but the small refineries kind of need a break, but couldn`t the government subsidize RINs for small refineries instead of giving them a complete pass?  Maybe increase bio fuel credit rates. 

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