The USDA recently came out with their estimates for corn ending stocks at .935 billion bushels which is 8% less than last year and an 11 year low. In fact the last time corn stockpiles were this low corn futures prices hit an all time high of over $5.00 per bushel. There is no guarantee that this same supply scenario will lead to all time high corn future prices again but massive amounts of new corn acreage will be necessary to keep up with the current demand and put a lid on rising corn futures prices.
Another consideration is the weakening US Dollar which makes American grains cheap to foreign buyers. There is more than a little talk by China and other Asian countries about reducing their amount of US Dollar holdings in favor of stronger currencies such as the Euro and the British Pound. This increased foreign buying power should lead to increased foreign demand and can also have an extremely bullish effect on corn futures prices over the near term.
Many analysts believe that crude oil futures prices must remain above $50 per barrel in order for ethanol production to remain profitable. Ethanol demand and usage is growing dramatically since the US government mandated its use instead of MTBE which was found to be poisonous to groundwater supplies and potentially harmful to humans. This mandate to use ethanol as a gasoline additive may also cut into the already tight corn supplies an help push corn futures prices higher.
There are two basic ways to speculate in the expectation of higher corn futures prices. Investors can purchase or go long corn futures contracts or purchase call options on corn futures. Many new investors choose purchasing call options on corn futures because of the finite risk aspect of purchasing options. Visit http://www.tkfutures.com/basics.htm to learn more about the mechanics of futures and options investments.
Before investing in corn futures or corn options investors must understand one basic truth. High profit potential investments such as corn futures and corn options carry with them a correspondingly high risk of loss potential. Investors in corn futures and options should only use risk capital because there is risk of loss in futures and options trading.
Visit http://www.tkfutures.com/risk_disclosure.htm to learn more about the risks of commodity investing.
The author is a 13 year veteran of the commodity trading markets and the owner of a commodity trading company.