The bears have been pulling value out of the corn market just like it was salmon from an Alaskan stream. And while the bulls have been getting hungry, they have found the pavement on Wall Street to be unfriendly. Market observers frequently admit that corn prices have totally ignored the fundamentals, and with continued liquidation in the equity market, commodities have been sold off as well to raise cash. That doesn’t help anyone trying to sell corn to raise enough money to plant next year’s crop. Despite the no-win situation, we’ll try to assess the current corn market.

Place your bets: $3 corn or $5 corn. Which will we reach first? Purdue economist Chris Hurt is looking for the bottom in the corn market. He’s like the nimble-tongued politician who said about an issue, “Some people are for it, some people are against it, and I tend to agree.” Hurt can argue either way on the direction of corn prices.

On the positive side, he said USDA is counting on ending stocks next August 31 to be tight at 1.1 billion bushels. That is the least in more than a decade, and at 14% of use, the least in more than 3 decades. So tight stocks will support the market.

We’re two weeks from Thanksgiving, and only 71% harvested, so Hurt figures the market still owes us a post-harvest rally. And he quotes some of the financial economists who say the stock market has the negative news built in and it should soon recover, which Hurt says would help the corn market.

December corn futures have found support three times at $3.70, which Hurt says may form the base for a rally, which he says may take corn to the $4.30 to $4.50 range over the next month. From there, he says corn may extend its rally to the $4.75 to $5.00 range for July futures during the spring or early summer months. He says that comes with the assumption the global financial crisis is in the rear view mirror and was not as serious as it could have been.

On the negative side, Hurt says corn demand could be weaker than USDA anticipates due to poor export sales, declining livestock numbers, narrow ethanol margins and more wheat being fed instead of corn. Driving those are the global financial crisis, falling energy prices, and the rising value of the dollar.

1) The lack of spending, and the preference of consumers to hold onto cash or pay down debt, would deflate the value of commodities
2) Declining oil prices, which take ethanol and corn values down, may be looking for a bottom that would also signal a bottom for ethanol prices as well.
3) Rising values of the dollar make importers spend more for US corn, and that dampens demand and weakens energy prices. While corn exports have been weak, so have exports for US meats.
4) The ethanol markets have tight profit margins and losses have been recorded since September due to lower oil prices. Expected excess capacity in 2009 will also mean plants will operate in the red. With the six cent drop in the blenders’ credit scheduled in January, the lower subsidy will push corn prices down by 17 cents per bushel.

Chris Hurt says any drop in the corn market below $3.70 will possibly push it down to the vicinity of $3.10.

The Purdue economist says farmers fearful of corn reaching $3 should consider a forward contract to deliver corn by early summer. If the basis is weak, a hedge-to-arrive contract will protect your futures price until summer while the basis can strengthen.

For the corn market to increase, Hurt says the financial crisis cannot get worse, oil has to hold at $60 per barrel, and the US dollar must level off. Due to the uncertainty, USDA reduced its estimated farmgate prices to $4.40 per bushel for the marketing year average.

Summary:
When fundamentals regain control of the corn market, some could take it down to $3 and others could push it to $5. Arguments can be made for both, but for prices to rise, the global financial issues need to be resolved, oil prices need to hold, and the dollar needs to quit appreciating. Once those are controlled, corn prices would be pushed higher by tight supplies and a very tight stocks to use ratio.