Corn cob grows in an agricultural field in Canada. Photographer: Shannon VanRaes/Bloomberg
Better stock up on corn flakes while you can still afford them.
An exceptionally weak harvest in Brazil and a likely U.S. drought this year should propel corn prices even higher by the end of the year.
December-dated futures contracts for corn were recently fetching $5.69 a bushel on the CME. That’s up from less than $4.90 at the beginning of April, according to CME data. The Teucrium Corn exchange-traded fund (ticker: CORN), which holds a basket of corn futures, performed similarly.
At least part of that rip-your-face-off rally is the likely disastrous second corn crop from the world’s second largest exporter. “Currently, the corn market is pricing in a failed 2nd crop Brazil production number and greatly reduced forward looking exports,” states a recent report from Hackett Financial Advisors.
“Blow Off Top” Coming Soon For Corn Market
The good news is that there is likely to be a pause in the current rally during May, which will then give way to to another massive rally in the summer, according to Hackett. The report states:
- “We should have a pause in May from which a final blow off top on escalating US drought fears that we have been predicting will occur in July […]”
A blow-off top is characterized by “a steep and rapid” increase in trading volume and price, followed by a steep reversal, according to financial website Investopedia.
The Hackett report continues: “[…] end users should look [to] buy any breaks that may occur in what should be ideal planting weather in the U.S. in May.”
May Is the Time to Buy Corn Futures, says Hackett
In other words, prices should dip in May with the prospect of a good harvest followed by drought in the summer which will then give way to a monster rally. During that dip anyone who needs to buy corn, such as livestock farmers, might want to purchase some December-dated futures contracts. Likewise, risk tolerant trader may wish to do the same or buy the Teucrium corn ETF.
Hackett’s report says the likely summer corn market action won’t be the end of the good times for the corn market.
- “[The likely rally this summer] is only the first part with the second act of the play to reaching even higher levels come the Spring/Summer of 2022 when an unimaginable long cold and snowy winter places its mark on Northern Hemisphere production potential.”
In other words, this summer c ould just be the warm up for the main event.
