Mar 15, 2011

Posted by in Commodities, Featured | 14 Comments

Commodities Corn Prices

Commodities Corn Prices

Commodities Corn

As Autumn approaches for Commodities Corn Prices and many future traders, the “New Normal” might already be old news. As recently as late spring analysts were saying the long-term outlook was for prices of $3 to $4 a bushel. That would be roughly 50% below the record highs set in 2008, but keep in mind, above the $2 to $3 that was the historical average before the latest boom in ethanol usage. Since then, a major historic Russian heat wave/drought has spread concern regarding global grain supplies and U.S. farmers had reported sub-par yields. Traders and investors alike are indeed taking notice and corn futures have ramped almost 60% since late June. While a short term correction would seem likely, over the longer term many bulls could have enough fire power to keep the bears at bay for months to come.

The most recent run of the markets climb to 2 year highs have been fueled mostly by U.S. crop. Also, the USDA mentioned that by 2011, supplies as a percentage of total tally usage would be at their lowest level in 15 years. A negative catalyst was due to a wet, early summer which washed away fertilizer, followed by unusually hot evening temperatures that never gave the crop a chance to “germinate” are being spotlighted.

Analysts are coming forward stating markets are trying to contain “ration” demand-probing to find a price too steep for export customers and domestic users. Until that happens, or until the market gets a firmer grasp on the size of the crop, there is upside potential on price tags. “The probability that corn will trade $6 or higher by year end…has increased meaningfully in our view,” Morgan Stanley analyst Hussein Allidina stated in a client note in response to the Sept. 10th report.

Livestock producers and other large scale consumers of corn are aware of the bullish projected forecasts, so when prices correct, they will buy at a potential bargain, hence limiting the markets downside. It isn’t just the 2010 crop that will feed bulls, more and more attention is being drawn to the 2011 crop while keeping a close eye on the 2010 winters nationwide as well as globally. Farmers have the incentives to plant more corn acres to replenish the dwindling supplies in turn keeping prices firm. At this juncture, “right now for the next several months, from a fundamental standpoint…things look quite sound” coming from Darrell Good, an agricultural economist with the University of Illinois. That doesn’t mean that corn will rapidly approach $8 as it did in 2008. Crude oil is far off its record highs from that year and $6 corn will probably lead to less U.S. produced ethanol being converted into gasoline. Even so, speculators are betting big that prices will continue to rise. A key factor is that the gap between the number of wagers on price rises and the bets on declines is bigger even than it was in 2008. This puts speculators in a quite vulnerable spot.

In summary, commodities corn prices and real world users of corn decide they’ve bought enough, a wave of profit taking may hit the market. The unknown is still whether or not a record crop of 2011 will bring prices back down to levels seen earlier this year.

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