The grain market values tend to trade around the fundamental facts which are known to the industry. However, if we only traded around the things that are known, there would be very little volatility. The market’s movements are created by the anticipation of what potentially lies ahead. The fact that there was a severe drought last summer has established the market that we are in today, but it will not be the factor that creates the movement going forward. The viability of next year’s crop is what’s going to make the corn market going forward, so as growers and sellers of corn, that’s where we need to focus our attention.
With the seed sales industry in full swing with early order programs, we already know that planting intentions for the 2013 corn crop are larger than the record acres in 2012. Based on the farmer’s appetite for corn seed, we should expect to see something like 98 million acres of corn being seeded in the United States next spring. Obviously, we all know that it takes co-operative spring weather to turn big planting intentions into big planted acres, so the sell off will be limited but the basic posture of the corn market is shifting towards bigger supplies ahead.
The blue line on the chart above is the December corn future’s price for the past year. Since 2012 was also a year with very large planting intentions, it gives us a great model of what to expect in terms of market direction in a year with big planting intentions. The general direction of a market expecting bigger production acres is lower, and you can observe that in the way that CBOT corn futures behaved last winter. The critical event in corn prices in 2012 was when we got into late June and early July, and people began to notice that it hadn’t rained. This could happen again, but you’ve got to be responsible for your own bets on the weather.
Due to last year’s drought, we’re starting off the 2013 marketing year $1.50/bu higher than where we started 2012. The question is, how much of those gains do we want to haul in off the table as the big 2013 crop develops, and how much “Las Vegas grain” do we want to hold in case a second tough growing season develops ahead?