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Suddenly, like lightening, the corn market drops to limit down. "Limit down" is the maximum the corn market can drop in one day. For corn it is 30 cents or ($1500.00 (each penny equals $50.00.) December corn traded at $3.6725 per bushel down the limit.
Why did this happen? Berry and Rees reported that today the Agriculture Department released its report on corn plantings which forecast 87.035 million acres up from 85.982 million acres planted in 2008. More acres mean more corn and more corn means lower prices.
Analysts had expected just the opposite i.e. for the department to cut acreage. Now all these guys are scrambling to cover themselves. Mike Zuzola claims that the March numbers were not accurate. USDA Chief Economist, Joseph Glauber, said that he was surprised by the numbers adding that the March numbers reflected planting intentions not actual plantings.
What does all of this mean? First of all here is a cardinal rule: "never take a position ahead of a key government report." No matter how good you are, you can never outguess the numbers. Stay out of the market when these reports come out. Finally, the increase in corn production should keep a lid on corn prices for the remainder of the year.
Will the drop in the futures market for corn keep prices down at the supermarket?
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Reader Comments (Page 1 of 1)
7-01-2009 @ 3:42PM
booksandbooklets said...
God said, "be encouraged."
7-01-2009 @ 10:09PM
Beltway Greg said...
A few more observations that typify market mania/behavior.
a. everyone ran for the exit at the same time and a colossal pile of bodies, in the case of money, lower prices was created. Watch corn rebound tomorrow and additional acres doesn't necessarily = additional yield. Furthermore, planting more might mean they see increased demand when it comes time to harvest. In industrial production this is akin to increasing production before anyone else notices that demand has increased.
b. 85.982 million acres vs. 87.035 million acres? How did they create this number? With analysts and other govt. reports are those numbers reliable? How did they do in the past? 1 million acres? Is this statistically significant? Has production fallen/demand increased in another part of the globe?
c. Limit down? Why? I understand the uptick rule but it seems "limit down" essentially guarantees a price and would therefore make it more likely one would dump because you're guaranteed a particular price? Yes. Tomorrow if Wells Fargo opened at $24 and the govt. announced that it was going to decline but only $22 would that encourage traders to dump it because they can get a set price?
d. My bet is that the price of corn will rise in the fall.
Why? Because everyone expects it to fall and I think these numbers are bogus. Bogus to the upside and bogus to the downside. All you have to do is to sit and wait.
e. I really don't know the corn market (I'm being polite to myself here) but I'm going to take a small position in it tomorrow at about 1:00 p.m. EST and hold it until Oct. 31st and I'm not even going to check it until Oct. 30th.
If I lose money maybe Willie Nelson will hold a concert for me. Note to Willie, if you do, please book the Australian alternative band the Church.