Summer Is Here! Will Corn Erupt To $8 A Bushel Again?

| June 24, 2013 | 0 Comments

cornHere we are…

Last Friday was the first day of summer here in the US.  For you, that may mean barbeques, beer, and baseball games over the next few months.  I know I’ll be spending plenty of time at my grill in the near future.

But for America’s farmers, the next few months will be filled with weather anxiety… 

As you may know, we’re entering a pivotal time in America’s crop cycle.  Now that most of the planting is done, farmers need Mother Nature’s cooperation for a successful growing season.

Of course, she did the exact opposite last year… 

The summer of 2012 was extremely hot and dry in the Midwestern US.  As a result, significant portions of America’s corn crop withered in the field.  That sent the price of the essential grain surging from $6 a bushel in late June to $8.40 by August.

And judging by recent trading action in corn, some traders are positioning themselves for another disastrous growing season.  In fact, the price of corn on the July contract jumped as high as $6.80 last week. 

Could this recent jump in corn be the start of another phenomenal summer rally?

The likelihood of a price burst rests squarely on the next few months of weather. 

But judging by current corn market fundamentals, a jump above $8 a bushel is highly unlikely. 

After all, the United States Department of Agriculture (USDA) still expects 97.3 million acres of corn to be planted and 89.5 million acres to be harvested.  Those are the highest USDA estimates investors have seen in years.

And that’s not all…

Brazilian farmers are currently harvesting their safrinha corn crop.  In case you’re unaware, safrinha is Portuguese for “second-crop”.   Planted early in the year on vacated first-crop soybean acreage, the safrinha harvest will ease international demand for US corn over the next few months.

Obviously, spot corn (the July contract) is fairly firm due to tightness in old-crop supply.  But as long as there aren’t severe US weather disruptions over the next few weeks, bulls will be hard pressed to carry corn higher.

The same goes for soybeans…

Even though the old-crop July contract has had quite a run since early May, further soybean gains may be hard to come by.  Once again, South American farmers have produced an enormous soybean crop that will help displace demand for US soy.

As a result, once the July contract expires, bulls will be hard pressed to send this market higher.  In fact, the front month contract is currently trading at a hefty $2.30 a bushel premium to the November contract.

Here’s the bottom line…

As long as Mother Nature cooperates, US farmers will produce one of their best crops in years.   As a result, the likelihood of a huge summer rally in grains will dwindle with each passing week of good summer weather.

Stay tuned to Commodity Trading Research for continued coverage of hard asset market and unique ways to profit from their movement!

Until Next Time,

Justin Bennett

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Category: Corn, Grains, Soybeans

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.