Weather markets and growing concern over wheat Bob Utterback
While I’ve felt for some time the current type of price action for corn was possible, I really did not think the market would be able to overpower the fundamental supply situation this early. Essentially, (in December and January) corn was being held up by strong outside market action in beans and outside markets like gold and energy and modest farmer movement of inventory. For lack of a better identification, it appears we are now in a FULL FLEDGE WEATHER SCARE MARKET that is normally associated with summer time. I am concerned this pricing event is occurring when the end user can really do something about increasing production. In fact, I would not be surprised to see a major high be put in place before the planters actually move to the field. The trade, the end users, and the producer will all be dressed up and prepared for the bull party to start in June and July. If it does not, I foresee some real downside concern when all the big fund long position wants to get out of the market at the same time producers are ready to sell corn!
Last week, leadership of the ag grains market was given to the wheat complex. The growing concern about the hard red winter wheat in the U.S. and some growing concern about the Russian wheat crop have ignited fund buying. The corn and bean prices have been pulled up by the wheat market because of three things: (1) wheat is feed competitive of corn; (2) as wheat prices increase, it has the potential of pulling more acres from corn next year; and (3) we have seen two weeks of solid corn exports.
End users and speculators are buying and producers who have not sold old crop corn have been given new life to hold back inventory. If the December corn contract can test $2.60 in February with a 2.4 billion supply, what will it do in July with weather as the battle cry of the bulls? I have to say right now the market is operating more out of fear of the unknown. When you couple this with the large amount of speculative money willing to move into commodities, you have a situation that is fundamentally difficult to explain. The issue is the market will ultimately come back to value long term. The market is doing exactly what we want it to do—rally; the only problem is it’s doing it exceptionally earlier than expected.
So what should we be doing now? Do we abandon our long-term marketing plan right when we are starting to get into some serious price objectives or do we simply adjust the selling strategy? This is not the time to stop selling but increase your effort! If we run through the 2006 bushels we always have the 2007 and 2008 bushels to sell.
