As published on InsideFutures.com. Get futures quotes, charts and more commentary at InsideFutures.com.
Weather-related production losses, the weaker dollar, surging crude oil, and continued high demand are all helping boost the grain markets. Both corn and soybeans have both been in bull markets that should continue in the long-term due to the vast global demand for food and fuel. Corn hit a record high of $7.03 a bushel on Wednesday, June 11, in the July futures contract.
On the demand side, keep in mind that China has two-thirds of the world’s population, and their thirst for cars, meats, and air conditioners is here to stay. Other parts of Asia, such as India, are also keeping demand high. Even if demand dropped in the U.S., it would be easily picked up in the Eastern part of the world. I don’t think we will see corn at $2.50 a bushel any time soon.
The Midwest suffered from chaotic weather this past week including flooding. This has led traders to worry about unplanted acres and acres that will have to be re-planted. This will obviously have an impact on crop yields this year.
The USDA is projecting that farmers will plant 7.5 percent less corn this year than last. The weather will continue to play a dominant role in both corn and soybean yields in the coming months, and it will definitely be an exciting time for the grain markets.
Even though we are in the midst of a bull market, this doesn’t mean we can’t have a serious correction. Just look at where corn prices peaked in July of 1996 (see chart below), and where they traded in the months that followed.
If you’re looking for a place to get long, you may want to buy dips in this market. There could be a window of opportunity for this at the end of June or beginning of July. The first notice day for the July grain contract is on June 30. Usually, the first notice day will put selling pressure on a market. Also, the grains tend to seasonally sell-off in late-June and early July. This may be the only significant correction the grains see in the near-term. I would recommend buying the dips for a long-term continuation of the bull market. If you are currently long, you may want to consider hedging yourself to protect any profits you may have if the market corrects back at month-end.
I believe that history often repeats itself. The natural course of cycles theory is when a market takes out the life of the contract’s high, and then the natural cycle is to either double or triple in price. The last major high in corn occurred in July of 1996, when it traded near $5.50. Those that believe in this theory would expect corn to eventually approach $15.
However, I believe a reasonable target for corn by the end of this year is $8, which would largely be dictated by price movements of the U.S. dollar and crude oil. If crude oil continues to rally, that will naturally push corn higher because of ethanol mandates by the U.S. government.
Specific trade recommendations usually depend on the size of a person’s account and their particular risk tolerance. You are more than welcome to call me at 866-790-4371.
Carol Hurley is a Senior Market Strategist with Lind Plus. She can be reached at 866-790-4371 or via email at mailto:tevans@lind-waldock.com.
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As published on InsideFutures.com. Get futures quotes, charts and more commentary at InsideFutures.com.
