This is one article I may end up eating and some of you might want to salt and pepper it for me. Why? As I write this on March 4, I seem to be one of few who are bullish on corn and soybean prices. Many can't understand how this market could possibly go up, and yet I am in the camp of wondering why anyone wants to be bearish at $1.90 corn and $4.25 soybeans.
Here are some of my reasons:
Corn acreage is going to increase this year, but even with trend-line yields, production will not be high enough to offset increases in usage. Barring a record-producing weather pattern, carryover supplies of corn will decline this coming year.
Corn prices have been too low for too long. History tells us that should, and I think will, result in long-term usage increases both domestically and worldwide. The laws of economics have not been repealed. Keep any commodity too low for too long and someone finds more ways to use it.
As of the end of February, commercial firms were holding a very large long position in corn and the commodity funds were extremely short. This is a bullish combination. In the long run, commercial firms are normally right. And since the majority of funds are technical trend followers, they traditionally have their largest short position near the bottom of the market.
While I have no way of proving it, the movement of corn and soybeans is much heavier this year than in the last three or four, according to feedback from subscribers and clients. Because of tighter cash flows, farmers have been aggressive sellers of old crop this past year and are ready to pull the trigger on any rallies for new crop.
The majority of producers are afraid of South American corn and soybean production. Granted, this is a big problem. But at this price level, the negative news to South America is built into the market.
If cash corn in central Illinois goes above $2.02 and cash soybeans above $4.40, such a move would be a strong indicator that prices will peak in the July/August time frame. It's been a long time since grain prices have peaked late in the growing season — and no one is prepared for it.
Farmers and lenders are too negative. Attitudes are similar to the winter of 1995/96, before the bull market began. The majority of people are as negative now as they were bullish in late 1996. The majority is almost always wrong.
How high? Don't worry about that for now. The key is that you shouldn't be bearish in these markets. This is not the type of market that will result in a bull such as 1996.
Supplies of corn are currently about three times what they were at the beginning of that bull market. But a rally of 30-40¢ is certainly within the realm of this year's fundamentals. And soybeans at 50¢-$1 don't take a lot of imagination.
I've said it before — be careful of implementing marketing strategies this year that have worked in the last five. This is a different market climate with different fundamentals. Don't make this year's decisions based on last year's marketing mistakes and/or successes.
Planted acreage will be the first indication of price direction for the summer, and then all eyes will turn to the weather. Be prepared for a very different year.
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.