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KLEIST CONSULTING
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312-648-2233(March 16, 2000) CORN: NEW CONTRACT HIGHS FOR NEW CROP--While there is nary a seed in the ground, corn futures have shot up substantially, gaining about 12+ cents in less than a week, on prospects for an La Nina drought. The timing for the sharply higher turn around was interesting. Monday morning, 03/13/00, a confluence of weather comments came together. The biggest voice was the U.S. government agencies. In what was reminiscence of an old U.S. saving bonds ad, it seemed like "an expected drought is backed by the full faith and etc., etc. of the U.S." Meaning the NOAA, the NWS, the U.S. trade rep, the USDA all issued drought warnings or commentaries. On top of that, drought prediction articles appeared in U.S.A. Today, the Wall Street Journal, etc. The effect was dramatic, especially with the funds. During the last flush out after the first of the year, funds drew down long positions dramatically as the drought edge was taken off the market as the rains and snow fell. However, I noted that there was a weather premium still under the market and a break was evident, but not a melt down. That was true. But I did not expect the third part of the three part drought market "concerns" (first was the southwestern Plains, second was South America) to begin this early. Had all this publicity happened further down the road, it would have had all the evidence of a major top. Prices though were not that high as the market set back well off their highs; i.e., back to roughly 2.20 corn, 5.00 beans. So, when the major government agencies warned of a drought we were off to the races once more. That said, December corn has rallied to over 2.60 and May to near 2.40. The calendar still is a major hindrance to expect much more for the time being. Nonetheless, as before one can expect a good break at any given time (fund back long 350 million bushels?), but not a melt down. The only caveat being if for some reason we get wave after wave of saturating precipitation into planting. Fundamentals be damned under the circumstances. Moderating export sales here and more lost sales to China are incidental and taking a back seat to the bigger picture. For the foreseeable future anyway. The trick is to not let the rallies get away and get stuck at any given high. And since the grain markets are going to be trading air for awhile, there is no telling what the ultimate objective will be. This potential La Nina drought bull is a work in progress.
John W. Kleist
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