Driving Blind In This Fractured Corn Market

Corn Market FracturesI used to have one rule.  When corn got to $4 a bushel, I would sell.  So what am I supposed to do now that the price of corn has reached over $8 a bushel at Southwestern Ontario elevators?  I guess I will have to change my rule. Who would’ve thought that way back in 2009?

It has been a very late spring in Southwest Ontario and that finds your loyal scribe in a tractor planting soybeans.  However, I’m hooked up to Sirius satellite radio, which means I get all the financial market action of the day.  I really enjoy it, especially the fact that CNBC and Bloomberg News often have reporters at the CME.  Today, with the USDA releasing their June WASDE report I could hardly believe the numbers that came out of my tractor radio.  The CNBC reporters on the floor were almost drowned out by the wild shouts in the trading pit.

What we have is a complete fracture of the corn market.  The USDA reduced its planted acreage 1.5 million acres from the March intentions report.  This put the intended acres down to 90.7 million corn acres.  They also reduced the harvested area by 1.9 million because of flooding in many US states.  This was bullish enough but when you look at the new crop ending stocks estimate being reduced to 695 million bushels from the May estimate of 900 million the corn bulls were running wild.  It’s like we knew it could happen but when it does it is still surprising.  When the market opened July corn broke up to $7.91 a bushel, a new record.

In our new agricultural commodity world where everything is packaged as an investment opportunity, it was a good day for everything agriculture.  For instance shares in companies like Monsanto and John Deere went up on the news as well as the spirits of everybody who had old crop corn in the bin.  The CNBC reporters who obviously don’t have as big a stake in this as most of us kept asking, “are we going to run out of corn this year?”   That has never happened before, but boy this year, are we testing the limits. The stocks to use ratio on the 2011/12 corn-marketing year now stands at 5.2%.

It made me think back to the Louisville Farm show.  I always really enjoy the marketing seminars that my colleague Darin Newsom presents.  At one of his seminars I met an older farmer (older than me) who said he had 20,000 bushels of corn in his bin and he wasn’t selling.  The cash price in his neighborhood was $6.80 a bushel.  I question him on that and he said that he was in a corn deficient area and the ethanol plants will be dying to get his corn in July.  I would love to know if he still has those 20,000 bushels of corn.  If he does, he surely has ice water in his veins.

We surely all know the fundamentals situation when it comes to corn supply and demand.  We were squeaky tight to begin with this year and with things going awry in the eastern Corn Belt, some might say that we are simply getting what we deserved.  What I find interesting though, is the impressions from the nonfarm media at CNBC and Bloomberg regarding our agricultural commodity price scenario.  For the most part, they are all bullish agriculture and in fact I keep hearing this promo over and over which says,” should we all quit and go farming.”

Sometimes I think this is where we get in trouble.  For instance, when you say $8 corn to me that is almost like the recent price explosion in the silver market.  Yes, I know it is very different, but I have had traders comment that to me.  I am such a captive of $4 corn; this new world is just so very different.

In many ways that is our great challenge as farmers.  We need to recognize as we move ahead how different our marketing horizon is.  Over the last couple of years I have tried to document the noncommercial interest in our agricultural commodity markets.  That is surely there in spades.  However, it seems now that the US non-farm news media are believers in their own news clippings regarding our agricultural commodities.  This is adding to the hype and probably at the end of the day, adding to the demand.

So where should we go?  I dunno.  In many ways I think as farmers we are driving through such untapped territory, it’s like we’re driving blind.  However, there will be a time when we get our bearings.  Planning accordingly in this marketing environment is surely job one.