As the markets get ready to move into the month of June, it's been a long time since conditions for an explosive weather market going into the Fourth of July weekend were present like they are now.
In a market that was already becoming historic because the ethanol industry has increased usage of corn beyond imagination, weather conditions since early spring have set the stage for a market that most of us can only begin to imagine. Consider what has happened thus far:
The USDA originally estimated planted corn acreage at 90.5 million acres. But a freeze in April killed much of the already planted and germinated corn from central Kentucky to an area at least 60 miles south of Memphis. A huge area was wiped out.
Many of the corn acres that froze were not replanted in corn. Some went back into cotton and some went back into soybeans. Many of the acres that were replanted in corn were planted with varieties that will result in less than optimal yields.
After the freeze came flooding in Iowa, southeastern South Dakota, eastern Nebraska, southern Wisconsin and northern Illinois. Many acres were planted extremely late and some didn't get planted at all — going into soybeans instead.
While some areas such as central Illinois were planted on time and have had near ideal conditions, this has been more than offset by poor conditions in the areas mentioned above as well as many areas of Ohio.
What does it all mean?
Two key factors have evolved from events in April and May. First, the anticipation of the USDA being correct in its estimated planted corn acreage of 90.5 million acres has all but been wiped out. At the most, we would anticipate that the final planted corn acreage would be 89 million acres.
Furthermore, the potential of a trendline yield of 152 bushels per acre or higher has also been diminished. With a national average corn yield of under 150 bushels per acre and a planted acreage of only 89 million acres, this market is set for major fireworks.
When and where will it peak?
No one knows for sure where the top of the corn or soybean markets will occur. But it is important to remember many old rules of thumb that will continue to work. First, supply-driven bull markets peak early and have a long tail. Supply-driven bull markets peak when the news is most bullish and the most obvious. In my opinion, this will most likely occur on or before the Fourth of July weekend, which has been a classic turning point in all markets.
Also, it is important to keep in mind that in weather markets that result in supply shortages, prices will always become overexaggerated to the upside and the emotions will start to run extremely high.
I don't know exactly where the top in this market may come. It may be when December corn hits $4.30. It may be at $4.60. It may be at $5. I do know that when it occurs the exhaustion top will be fairly obvious and the emotions in the coffee shop will be extremely high. History doesn't change nor does human nature.
This market will make a top when all of your neighbors are the most bullish!
I think it is most important to look at this market from a timing perspective and for right now, all I think we can do is focus on the Fourth of July weekend. The top may be just before then — or it may be just after then. But with a weather problem market, this is the next key timeframe to watch.
Additionally, this will be a timeframe to think about marketing strategies not only for old crop corn and soybeans but also for the crop that is in the ground (the most important one) as well as the crop that will be planted next spring. It is certainly not out of the question that the highs made this summer may result in a two-year market peak.