Tuesday, July 24, 2012

Time to Sell Corn?

For those just starting to take a look at corn as a potential investment, it's something that should be held off on, even though Goldman Sachs (NYSE: GS) recently raised their price target on corn to $9 a bushel, and Morgan Stanley to $10 a bushel.

Those price targets were based on nothing more than probable momentum, and most likely the USDA estimates for damage being lower than the reality of the situation on the ground, which is surely far worse than the conservative estimates of the USDA.

Having said that, corn has been rising in price so quickly that it needs to take a breather.

You can tell that from the response of traders to the news that significant rain should hit parts of the Midwest this week. Traders sold off some of their corn, resulting in the price falling by over 5 percent for December corn.

That's important because the damaged corn in the fields are beyond saving, which is up to 50 percent of the corn planted in the region.
In other words, traders were looking for almost any excuse to sell, even though rain will do nothing to boost the quality of the damaged corn, neither save any of it that has already pollinated and is in poor or worse condition.

If someone is interested in trading corn, the best thing to do would be to wait until this selling period ends and then take a close look at the overall picture.

Another element to consider is the threatening drought in parts of Europe and the same in areas of Australia.

For those holding corn, there is a lot of potential upside over the next couple of months, and seeing which usually highly productive areas of corn country are receiving significant rain will tell whether or not corn will continue to surge up in price.

Another factor is how the high price of corn will affect other uses of the grain. It's certain that some of the uses for corn will fall in response to the higher prices, which will do some to pull back on the rise in corn prices.

More devastating weather in the Midwest of the U.S., and other areas of the world, could overcome that response and send corn soaring.

But if the promised rains come and corn that can still be salvaged ends up doing okay, $9 a bushel is probably the tops we'll see.

Probably the only thing that would change that if corn in good condition recovers is if new investors get in bidding up the price without knowing what they're doing.


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