A sharp price break is likely to follow the steep run up in corn prices, a pair of economists told DTN.
"Nobody knows where those highs will come," Purdue ag economist Chris Hurt said. "The market will form some kind of inverted V-top, a sharp run up to the top and then a sharp break from the top. Picking where the top peak is? Impossible."
In classic drought markets, the market tops when the drought hits its most severe point, typically a very bullish day, Hurt said. With no rain in sight for much of the Corn Belt, he doesn't think corn has reached a peak, but he thinks the odds are high that the peak will come within the next 45 to 50 days.
December corn futures closed at $7.4025 on Friday, a 46% increase from the June 15 close of $5.06, as searing heat and drought disrupted corn's pollination, sapped its production potential and dashed hopes that a large crop would replenish short supplies.
The remarkable rise in corn prices shows just how quickly a drought can pull down a farmer's prospects, said Chad Hart, extension economist for Iowa State University.
"Prices will continue to go up as this crop deteriorates. Therein lies the big rub here," Hart said. "As exports diminish, it should slow down that (price) growth, but until Mother Nature's done with it, it's hard to tell where this thing's going to top out at."
While diminishing demand may slow corn's meteoric rise, DTN Senior Analyst Darin Newsom noted that noncommercial investor interest is thinner than in previous rallies, less than 200,000 net-long positions last week while there were 379,000 contracts in February 2008.
While Newsom thinks there is still room for investors to add to their position, the market is already trading in the upper reaches of its historical price range. "Given the high volatility in the market and the high price, investment traders will likely not be interested in buying, limiting the scope of the 2012 rally," he said.
That also means there won't be much of a cushion once prices hit the demand-destruction threshold, historically $8.
"A lack of noncommercial buying interest could create a vacuum market: a situation where the market could spike lower due to a lack of buy orders once the commercial selling begins," Newsom said.
RALLY PROVIDES MARKETING OPPORTUNITIES
For farmers with bushels to sell, Iowa State's Hart said farmers are "staring at some of the best prices they've seen in quite some time."
He thinks corn will test its high just shy of $8 and possibly stay over $8 for a little bit. Newsom agrees. But in this market environment, Hart warns that farmers need to be cautious about not getting into an oversold position...
Source: Argentine Beef Packers S.A.
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