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Published September 07, 2010, 09:20 AM

Corn’s story for 2010 goes from bearish to bullish

I am very bullish corn. The outlook of the corn market has the potential of a very good story for 2011.

I am very bullish corn. The outlook of the corn market has the potential of a very good story for 2011.

Before the corn got too tall, one could span across the tops of the field and see the most beautiful table top flat picture. Indication of a fabulous crop. Then the ponds from heavy rains in late April and May in the southern parts of Iowa and portions of Missouri and Illinois started to dry out. However, in north-central Iowa, southern Minnesota and parts of Nebraska, the reverse was happening.

Meanwhile, USDA shocks us with a drop of 1 million planted acres at the end of June for corn. The market that was loaded up bearish was finding that perhaps not all was as the bear had said it would be earlier in the year.

By the third week of July, the trade that has been so bearish wheat got caught short of the realization that the former Soviet Union were succumbing to hot, dry winds that can decimate a wheat and grain crop in a heartbeat.

Food inflation has become an issue in China, India, Egypt, Pakistan and Russia. For the livestock producer in those countries, feed wheat is too expensive, but the world has a good supply of corn and the U.S. accounts for about 64 percent of the world’s exports.

Corn rallies again, but it still can’t seem to get past the March 1 high of 415. Plant pathologists and agronomists talk of shallow corn kernels and perhaps a crop not like what farmers are hoping for is being ignored.

Then comes August. With high temperatures and dry weather, this crop is coming home fast.

Minnesota, is going to be the darling state. Sandier soils may have the best year of all. Farmers now realize the crop is not what they thought it would be.

In eastern Kansas, corn is going across the scale at 130 bushels per acre and 42.5 pounds test weight. Last year, Kansas farmers had 170 bushels per acre to 160 bushels per acre.

However, corn is going to be in good demand on export to replace canceled wheat exports by the former Soviet Union. Egypt already is in our market. Pakistan has lost 500,000 metric tons of wheat seed.

If we thought we had adverse weather this year, the weather China endured both in the northern producing regions and the southern consuming regions would make our weather look like a cake walk. China is going to remain a huge buyer of U.S. corn, and there is more to this story. I hear that commercial end users have been caught flat footed waiting for the harvest low. Hedge funds are said to have a lot more money to put into this market because of the underperforming equities. A 21 percent rally in July corn measures up to $5.50. I am told this is the percentage that some of these investment firms are looking for corn to move in the next 12 months. With all the money potentially coming out of the equities, the bullish demand fundamentals and a market that has traded range bound since late 2008, corn will bring greater amounts of long position ownership than what we have seen for some time. I would look for record open interest in corn during 2011.

My suggestion to producers that are short on December corn for 2011 and 2012, is to be careful. In my opinion, it is not a good time to short so aggressively when prices have been range bound at prices that are half of what they were at the high for nearly two years.