Signs point to continuing strength in American corn rally

American analysts think the corn market can run higher, which might keep Canadian crop prices strong.

“I just think the long-term corn outlook is bullish,” said Mike Krueger of the Money Farm in Fargo, North Dakota.

“I’m in that camp that thinks (the U.S. Department of Agriculture) could trim the yields again in the November report and I think that they might have understated demand.”

Most crop prices shot higher Oct. 8 after the USDA cut its corn production forecast and increased demand.

The rally took corn above a crucial price level and caused it and several other crops to hit two-year highs.

The simultaneous surge in the value of the Canadian dollar offset gains north of the border. Many analysts attribute some of the crop price surge to the depreciating U.S. currency.

Most prices have slid gently since the big rally but remain higher than the pre-report level, leaving the analyst community abuzz with speculation about corn’s upside potential and whether it, and perhaps other crops, have moved into a new long-term trading range.

Wheat has been the most disappointing of the big three crops, falling back to the top of the range it held before the rally began.

DTN analyst Darin Newsom thinks corn prices should be strong as long as demand holds up and investment funds maintain their long positions in corn. Long positions assume the market will rise.

Corn could rally even higher if supply worries emerge. Prices could test 2008’s peak of $7.65 US per bushel if similar conditions develop. However, he doubts the market would exceed that level.

“This set the parameter we’re now dealing with of how high the market could possibly go when we throw a short supply scare on top of a demand market,” Newsom said in a long-term outlook presentation Oct. 14.

Corn futures would likely move above $6.10 per bu. if a supply scare developed, he said.

However, he also sees Achilles’ heels in the corn market. Corn’s strength in the last five years has come from demand growth and investment money looking for sounder havens than the U.S. dollar.

Investment funds’ net long position in U.S. corn futures is bigger now than in 2008, when many complained that it had overinflated prices.

Newsom said the flow of money into corn isn’t something to bet against, but if it flows out it could signal the end of the rally, as it did in 2008.

Also, high corn prices will strangle demand at some point, leading to lower prices.

“Can we shut down demand the way we did in ’08?” Newsom said.

Krueger said prices were nearing a support level Oct. 18 that technicians have closely watched. Many had called for corn to drop back to that level and then begin rising again.

“We’ll see if that holds,” Krueger said.

“I think the market deserved a break, the way it ran so far so fast.”

CORN DEMAND TO RISE ON HIGHER

ETHANOL BLEND FOR NEW CARS. SEE PAGE 42.

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