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Corn+Soybean Digest

Big Bear Market

In commodity price forecasting, people normally love you if you're right in a bull market and hate you if you're right in a bear market.

With that said, the corn market is in the midst of the biggest bear market in years. Why so negative? Here are some of my thoughts:

  1. Last year Midwestern farmers experienced one of the worst July and August droughts in history. Despite that, corn yielded a national average of 142 bu./acre.

    This year the crop was planted early. It rained almost non-stop for the next eight weeks, resulting in a bumper corn crop in the central Corn Belt.

  2. The laws of economics have not been repealed. Get the price of anything high enough and someone will find a way to grow more of it, cut back usage or find a substitute. Unfortunately, it's all happening.

  3. The market psychology is classic. As I write this article, (mid-July) many producers are still in the denial stage, hoping there are crop production problems somewhere else (but not on my farm).

Carryover Increasing

The supply and demand balance sheet above reveals the big changes taking place on corn's bottom line. This current year's carryover on Sept. 1 is expected to be 896 million bushels. With the good growing conditions thus far, we feel a 146 bu. corn yield for this year's crop is conservative. As you can see in the column under Brock Estimate, that increases carryover for this coming year to 1.072 billion bushels. If the yield jumps to 150 bushels, the carryover jumps to more than 1.3 billion bushels.

If carryover reaches the 1 billion bushel level, corn prices won't be able to hold above the $2.50 level. With a 10.2% stocks-to-usage ratio, our estimate is the national average price will be about $2.35. Note that in 2002-2003, with a similar carryover the average was $2.32. With December corn futures trading above $2.50 as I write this article — based upon this crop size — we have to assume that corn prices are still very high.

What To Expect

During the months of August, September and October approximately 400 million bushels of corn will come out from under loan.

With that amount of corn coming out of loan during late summer and a large crop coming in, this could turn out to be one of those classic years where prices exhaust themselves to the downside during August and September, making a bottom before we actually get into the glut of harvest and then see an improvement into December.

Unless something surprising occurs to cut yields, during harvest we may even see prices low enough to collect LDPs in some areas of the Midwest. Three months ago that didn't seem even like a remote possibility.

About three months ago we took an aggressive position in corn that many of our own subscribers thought too bold. Not only did we sell out of all our old-crop corn but we forward contracted 50% of the new-crop, hedged another 40% in December futures bringing the new-crop pricing to 90% and sold July '05 corn futures at $3.02 on 60% of the 2005-06 crop.

While aggressive, it has paid off big dividends. The goal now is to take profits on the hedges during late summer and early fall and complete the cash marketing during the price strength in early- to mid-winter. For any grain you need to have marketed at harvesttime, be aggressive now.

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

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