Wheat isn’t the only commodity that’s been on the rise since the drought hit Russia early this year. As the supply of "feed grain" has been reduced, corn demand has risen to take its place. Add in the production decline corn has seen since July and there is real potential for upside swings.
According to Rich Nelson, director of research at Allendale, supply is all that is holding this market back. "The bottom line is we need to have a drawdown in ending stocks due to both production declines and some concern on supply in the world…The key point from getting this market from a tight market to a bullish, panic market will be getting the ending stocks below one million bushels, and they are currently at 1.1 million," he says. Nelson expects December corn futures to be trading around $4.85 by mid-October.
In addition to concerns about production, John Sanow, market analyst at Telvent DTN, also points to strong demand, especially in the ethanol sector, as propping price. "As we get into harvest, we will know more about yield and know if the USDA numbers are correct or not. Ethanol demand remains strong. Exports have increased and feed demand has lowered," he says.
Sanow sees prices going higher. "We will probably run into some psychological resistance at $5, but it’s kind of proven we haven’t had too hard of a time running through round numbers. I would peg resistance around $5.25," he says.