Market Monitor

By Marlin Clark

Another Tuesday, another confusing turnaround

Once again it is Tuesday morning and I am trying to make sense of an exciting week. Once again we have made new highs, then traded lower in the overnight electronic session ending early Tuesday morning. Once again I get to say what is going on without really knowing. Just like everyone else you read, only I admit it!

Grain markets have decided to trade the Friday USDA reports as bullish, even though the news in them was already being traded. The result is a run at $5.00 futures on the Chicago Board of Trade. July and May contracts each had highs Monday at $5.02. December futures hit 4.86-1/2. This was 16-1/2 cents above the Thursday close, and 22 cents improvement in ten days.

The USDA Friday before the market open released several reports. They now say our corn crop will be 13.2 billion bushels. They reduced the guess 250 million bushels, but this would still be a new record. It would break the 2009 record of 13.1 billion bushels.

Just think about this. We are having two record crops in a row, if USDA proves correct, and yet we have surged prices to near $5 levels. What gives? Hate to repeat, but the fundamentals and the emotions remain the same in the pits. First, traders are not convinced the bushels are there. They think the crop is smaller than the USDA numbers. The, we have a demand-driven market. That is, the market is more concerned with how much corn is needed than how much we can supply.

The demand side has been driven the last five years by ethanol demand. We have continued to ratchet up acres and total corn supply and the market has responded with higher prices at the same time. This year the increase in demand is helped by Russian wheat problems. A significant portion of their wheat crop comes back into the EEC countries as feed wheat. That will not happen this year, given the small wheat crop due to record drought. This year the Russians will eat the feed wheat.

The response to the need for feed was the EEC deciding that maybe they could feed our "Frankenfood". That is the derisive term for crops grown from Genetically Modified Organisms (GMO). The greenies there had shut off imports of our crops when we "contaminated" supplies with GMO's. They believed that it was not nice to fool with Mother Nature, and the grains would not be safe.

Now we are way past contamination, and the bulk of corn and soybeans come from GMO seed. This has been a boon for production, but has limited some exports. Now the Europeans are hungry, and they have approved six varieties of corn for import, and have imported the first vessel.

This is very good for the future. For now, it is supporting prices in another big-crop year.

The mood in the pits has been less than euphoric, but has mainly expressed the reality that traders will want to run at the $5 level now that we are close. Talk has been that we could hit that, then crash. Now we are studying the reality of what does a run at $5 mean? If it is in any month, we are there, and this is Turnaround Tuesday. If it needs to be in the nearby month, we have one more leg up to gain. So far I am not hearing talk that the bounce lasts beyond that.

I am reminded of the comment of one trader three weeks ago, however. He said that, whatever low we made (which we made shortly after his comment), it would be the long term low. Prices would stay above that for a long time.

Maybe so, maybe not.

Marlin Clark trades producer and elevator grain for Keystone Commodities from an office near Andover, Ohio. He welcomes your comments at 866-293-4433.