With all of the excitement associated with the bull market in corn and soybeans, let's not forget that all bull markets do eventually come to an end.
There is going to be a shortage of corn, and soybean supplies are also declining. That's a known fact. We need more acres of both. The real question becomes, however, in an accelerating bull market what kind of corn and soybeans are we going to be short of?
The market clearly indicates now that we have a shortage of $3.50 corn. But will we have a shortage of $4.50 corn? The market has a shortage of $7 soybeans. Will the market have a shortage of $9 soybeans? They might look the same — but they aren't.
Compared to past bull markets in corn, the timing of this bull market's peak is starting to indicate a top could be close. In 1988, from the very bottom to the very top of the bull market was 16 months. The 1996 bull market was 19 months from bottom to top and the current bull market is getting close having completed 16 months at the end of February.
In every bull market, however, there also is normally an acceleration leg. In 1988 the acceleration leg lasted six weeks. In 1996 it lasted four months. As of the end of February the acceleration leg in this bull market was five months old.
Could a March/April top be feasible? It has happened in the past and due to the length of the current bull market, the odds are increasingly high that it could happen again this year. While many people are waiting to make sales around a “weather rally” this summer, the weather rally could very possibly start from much lower price levels and not get back to where the market is today.
How could this happen when ethanol plants are going to “eat up” all of the corn? Markets invariably peak when the news is the most bullish. Once the planted acreage in corn is confirmed, much of the bullish news will be discounted in this market. Market prices are anticipatory. Futures markets anticipate not only changes in acreage but also some weather issues.
Another issue all grain producers should be thinking about is whether the top made this spring could possibly be the highest price in corn and soybeans for the next three or four years. Few people if any are discussing that possibility, which makes it even more likely. How and why could this possibly happen?
First, I'm not predicting that corn and soybeans are about ready to make a three year or four year top. I'm opening up the question because it's possible.
Consider this. First and foremost, genetic improvements in corn yield are ramping up quickly. Add a 10-bu./acre increase to the national average and the majority of the corn shortage problem will be solved. Many high-ranking individuals in the seed industry think the improvements are going to be even more dramatic over the next three years.
Other issues could be the renewing of the 54¢ tariff on imported ethanol that expires at the end of 2008. Chemical companies are also rapidly working on an enzyme that will break down DDGS so that this new feed can be digested by poultry and pork. It's probably two or three years away, but when this new technology hits the market, demand for corn and feed will drop like a rock.
I'm still a bull in the corn market, but if prices accelerate rapidly between now and planting season, this could be the last bull that we'll see for this coming year's crop. Tremendous opportunities are going to be available in both corn and soybeans over the next two months. Don't hold out everything on the hopes of weather problems this summer.
Richard A. Brock is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report. For a trial subscription and information on Brock services, call 800-558-3431 or visit www.brockreport.com.