The October crop report confirmed that the laws of economics have not been repealed. Keep the price of any commodity too high for too long and people will find a way to use less and/or grow more. This was the sobering result of the USDA report released on Oct. 12.
Without boring you with a lot statistics, the bottom line is high prices substantially hurt exports of corn, soybeans, wheat and cotton. Domestic consumption’s also been hurt, and it’s widely anticipated that because of recent high prices, acreage will increase sharply this coming spring for corn. And due to the price relationship with soybeans at this time, we still feel that will be the case.
The bottom line: At the risk of sounding like a broken record, these markets all peaked in September and began a long-term bear market. That trend is still underway.
As bearish as I am long term because of the cutbacks in demand, there will be other good marketing opportunities in corn and soybeans for farmers.
As harvest draws to a close, grain-bin doors will be slammed shut and it will be very difficult to move corn and soybeans off the farm from now until January. It would not be at all surprising to see a 50% retracement of the declines in September. Should that occur, the target in March corn futures is approximately $6.85 and the target in December 2012 corn futures is approximately $6.10. For soybeans, the target for the November 2012 contract would then be approximately $12.85.
The market will need to maintain some strength to assure that the acres do get planted as expected. But marketing plans and approaches need to change. Up until September, as we all know it did not pay to be an aggressive forward seller. What worked last year will not likely work this year since we have shifted from a bull market to a long-term bear.
Last year was a year for traders to buy dips. Now traders and farmers should be selling rallies.
Let’s keep in mind that today’s prices based on historical five-year averages are still extremely high and still very profitable. Unless production problems materialize next summer, these are markets that will have a high likelihood of making an intermediate top sometime around planting time followed by a bear market into harvest of 2012.
Readjust your thinking cap from what worked last year.