Cream of Corn

Farmer Brown here again.  October is off to a brutal start for the farm commodities.  Yesterday all of the agriculture contracts sold off hard after a blistering September rally – on average the soft commodities were down 2.8% on the session.

But nothing compares to Friday’s drop in corn prices.  The December 2011 Corn contract was just absolutely creamed on Friday, posting a 6% drop in the pits.

Check it:

Explanations?  The sell-off was a combination of a few things…

1.  The proximate cause for Corn’s biggest one-day drop since January was a government release on stockpiles.  We’re all set on corn for now is the upshot.

2.  The market for all agricultural commodities has become increasingly dominated by financial players as opposed to actual hedging by commercial farmers and food industry players.  With the presence of so many hedge funds, mutual funds, ETFs, prop traders and retail shnooks,  the rolling over from one fiscal quarter into the next all but guarantees technical selling.

3.  The ag market had gotten ahead of itself during Q3 and profit taking was also inevitable.  Sugar, which was the biggest gainer in the CRB index of 19 commodities last quarter, gave up half a percent on the session.  Cotton just hit a 15 year high, it shouldn’t surprise anyone to see it give back a quick 4%.  These were all big winners in the just-ended quarter with prices that had gotten carried away in terms of the actual fundamental outlook for supply and demand.  You can partly chalk this up to the ag space being ETF’d as well.

High stockpiles, excess speculation, end of quarter technical selling, huge profits on the table – a recipe for creamed corn if I ever saw one.