Is the Corn Market Probing for a Bottom?

What Happened

In February, September corn futures peaked at just over $4.82. Since then, prices have been in a steady downtrend, finding a low just above $4 on July 1 — a change of just over 17%. Weather conditions throughout most of the Corn Belt have improved since mid-May. The current forecast suggests most of the Midwest will receive above-normal rainfall the second week of July. The USDA showed an increase in crop ratings from 68% good/excellent the week of June 23 to 73% on the June 30 report. This has kept money managers actively selling corn futures, according to the weekly Commitment of Traders report (COT). As of June 22, the COT indicated a net short position by managed money of over 180,000 corn contracts. This compares to over 350,000 long contracts in March.  

Prices may have already factored in a very good — if not best-case — scenario for yield. Another variable for corn prices that may become increasingly important for a longer-term view is the value of the U.S. dollar, which recently hit a three-year low. Between a weak dollar (down over 12% since January) and a 17% drop in corn futures, it is feasible to anticipate that futures prices may be trying to find a low.

Why This Is Important

From a producer’s perspective, selling at current price levels likely doesn’t make a lot of sense, unless your personal perspective is significantly bearish. To defend prices, you could use futures, which are flexible, or purchase options to establish a price floor. Bullish traders can argue that a weak U.S. dollar and a low corn futures price is a recipe for stronger demand. If you are a buyer of corn, you may not want to wait. Consider starting to buy sooner rather than later with cash contracts, futures, or long call options.

What Can You Do?

All this data implies that end users should think about securing inventory. Consider buying cash corn, futures, or call options. Cash purchases can be done through spot buying or forward contracting. If you are a corn farmer, you may want to be patient and wait for better days.

Find What Works for You

Work with a professional to find the strategy or strategies best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation rather than emotionally charged responses to market moves, which are always dynamic.

Editor’s Note: If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: (800) 334-9779.

Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy, or discipline will guarantee success or profits. Any decisions you may make to buy, sell, or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of the National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.

About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions.