As I write this article in mid-March, corn basis levels have improved substantially since harvesttime. The cash market is nearly $1/bu. off the bottom in early December; many of the ethanol plants that have been shut down through bankruptcy are close to being opened with new ownership and will be back online before the end of this summer. Projections for planted acreage are down substantially this spring. All this news is positive for prices.
Other news helping support corn prices include a drought in China and the concerns of another delayed spring in the U.S. But with all these bullish arguments, let's remember that they are well known and, for the most part, are the reason cash prices are $1/bu. higher than last harvest. Every price is good or bad based on a comparison.
These prices are high compared to last fall's low, but low compared to last summer's highs. Compared to the expected averages, $4.30 December corn futures could be high at harvesttime. The question is whether or not it can go slightly higher between now and the end of spring planting.
BEYOND THE BULLISH arguments, without sounding like an alarmist, look at the potential bearish arguments that are unfolding.
The bullish arguments are almost all known. It takes new bullish news to keep a market going higher.
Corn exports are down approximately 40% from a year ago.
Compared to historical averages and current stocks/usage ratios, corn prices are high, not low.
The majority of 2008 corn was planted six weeks late and the national average corn yield was still 153.9 bu./acre. With genetic advances, where will the yield be if the crop gets planted on time? 165 bu./acre? Could happen — could even be higher.
Many of your neighbors are put ting their crops under loan and hoping. If the grain is presold or is going to be fed to livestock, nothing wrong with that strategy. If not, why take out a loan when you can sell the crop for more? With half of the carryover under loan, a lot of corn will hit the market in August.
WHAT TO EXPECT
The corn market is not likely to drop substantially until after planting. Historically, spring rallies are to be sold. This one will not likely be any different.
The world economy is still in a deflationary environment. That does not mean that commodity prices will go down all the time, but comparing commodity prices to last summer's highs is not realistic. High prices this spring will almost assure a planted corn acreage closer to 84 million acres than the 81.5 million that many economists are now predicting. The higher the market is this spring, the lower it will be at harvest time.
I see no reason to be holding corn for a summer rally when carryover supplies will likely exceed 1.7 billion bushels. It is time to look forward and concentrate on marketing new-crop corn. In my opinion, $4 corn at harvest time in the Midwest may well turn out to be a high price. You may get a chance to sell it at $4.50, but I doubt you'll see anything higher than that. Sell spring rallies. Unless major planting delays occur, buyers should be patient.
Richard 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.