Could the Next Bull Market In Corn Happen In 2006? 1/25/2006
Patrick Hayes
advertisement The corn market has not seen the bearish levels of ending stocks projected for 2005/06 marketing year in some time. History tells us (1988) that bountiful projected ending stocks will not stop a bull price market from occurring. Could a bull market happen in 2006?
Following is a narrative of how the summer could potentially unfold. The purpose of this exercise will be to keep us on our toes so we are not lulled to sleep by the bears. The intent is to start to prepare you for what could be a volatile 2006. Consider that most of the Corn Belt could be starting the growing season with poor subsoil moisture. Consider the almost 11 billion-bushel demand for U.S. corn. Now consider the weather scenario below as one that can be initiated by La Nina conditions. Interesting!
February: La Nina conditions continue to grow. The Texas and Oklahoma drought starts to expand northward and east. Kansas joins Texas and Oklahoma with extremely dry and warm weather as the winter crop conditions deteriorate further. Corn prices start the month in a swoon. Seasonal pressures and large supplies of feed grain weigh on prices as the March contract puts in its low at $1.90 on February 10. A price move higher is led by concern for winter wheat with projections of a reduction of corn acres and slow producer selling. March corn closes the month at $2.12, the high price for the month.
March: The month starts out like a sheep for prices, as May corn trades sideways to slightly higher. The drought in the southern Plains is now affecting the southern Plains north to Iowa, as a large high pressure sits over the area. The north Plains and the eastern Corn Belt are stuck in a wet pattern, as frequent showers and snow blanket the area. The East Coast becomes extremely wet. Corn prices rally like a lion as March ends. The USDA lowers corn acres by 1.2 million in its end-of-the-month Planting Intentions report. May corn closes the month at $2.40.
April and May (planting season): The weather remains dry over most of the Plains from central Iowa and northern Nebraska south. The northern Plains and eastern Corn Belt are much too wet. Planting delays occur and many project that up to a million acres are not planted. Those that are planted get in the ground late. The problem is different in the western Corn Belt. Producers are planting in dust. May brings some timely precipitation and helps the crop some. But the unseasonal dry weather and poor subsoil moisture continue to have an effect. July corn prices close at $2.63.
June: July corn prices go nuts. The ridge in the western Corn Belt expands as the Plains remain mostly hot and dry. The eastern Corn Belt continues to receive timely rains, but the heat causes net drying with crop deterioration across the Midwest. Late in the month, commercials start to protect themselves by buying the market. With no sellers in the market, July corn zooms to $3.40.
July and August: La Niña conditions are worse than expected. The western Corn Belt is experiencing its first sustained drought in years. The affected area expands east to Illinois and north to Minnesota and the Dakotas. In August, the USDA projects yields at an average 110 bushels. Prices skyrocket as the pipeline for corn is expected to be dry. September corn closes the end of August at its high of $7.28 in volatile price action.
September, October and November: La Niña conditions weaken as yields start to come in better than expected. In November, the USDA pegs yields at 122.4 bushels. Production numbers come in just under 9 billion bushels. The higher prices cut demand as many end users feel the price strain. Corn ending stocks are pegged at a mere 540 million. December corn prices close the end of November at $4.89 after putting in a high of $6.02 on October 10.
The above scenario paints a picture of how the 2006 growing season may unfold. Are you prepared for what could be a volatile 2006?
