September 20, 2023
As the new marketing season gets underway, harvest results and market forces will drive decisions on what to store and what to sell.
Normally when we begin harvest, markets scurry to find out yield reports and react according to the above or below data. This year, we are seeing corn yields all over the place -- but the aggregate seems to struggle to be above last year. Maybe they will, but it’s for sure not a barn burner. They aren’t bad and in-fact, are good considering the weather. The hot and dry end to the season was not the ideal finish. Bean yields on early varieties are good, but most are expecting those to back off in full season. We’ll see.
But despite the reality check that corn yields are closer to 172 bushels per acre than 183, and beans 50 bpa vs. 54, the corn and bean market is not responding.
Closer look at corn
Corn has a good reason. Corn demand has been tough and in fact, has been revised down significantly. Yet, even with demand at 14.390 billion bushel in the last USDA report, there is talk that another 100 million bu. revision is likely. With end stocks currently estimated at 2.221 billion bu., that means that it is unlikely corn will get into a tight stocks position.
Comfortable stocks point more toward $4.50 than $5.00 corn. Can you make money at $4.50 ($4.25 cash) X Yield?
For some the answer is no. But for others the answer is yes and if you are in a market risk position, you might want to consider doing something. This might be a good year for tax evening up, so consider all your options. Even a cash sale and limited risk re-ownership might fit your situation.
The chart below shows us that typically, corn is about 50 days out before higher prices are likely. As oversold as it is, maybe a rally could come sooner. But the point is, as depressed as the market is, you might be able to get an option position, one that covers a $1.00/bu. price rally and eliminates 50 cents of downside risk for a premium cost of 10 cents. That’s cheaper than storing it.
There are potential margin calls in a down market but if you really want to maintain ownership, this might make more sense than 100% of the price and storage risk.
Soybean yield loss matters
Soybean market is a different animal. The yield loss from 52 to 50 or maybe 49 bu. per acre does make a difference. USDA’s September report showed end stocks at 220 mil bu. with a 50.08 yield. This is pretty tight and is only 5.2% stocks to use ratio, or a 19-day supply.
Demand is okay but not great. And even though we are not 100% competitive in world prices, we are running close enough to projected demand to assume at this point no major revisions are necessary.
As for being competitive, that is a seasonal thing. Purely from a speculative approach, it would seem beans have a better chance of a rally. As of this writing we are about 15 days away from the normal low in beans.
If you need to watch for outliers, keep an eye on if yields fall or rise into full season harvest (big impact on how end users and importers trade), Fed policy, and if the public perception is that we will return towards inflation or deflation (which impacts how funds trade), and South American weather (long time for that to improve).
One way to keep up on these main issues is to listen in on our weekly video reports. Monday, we review all fundamental arguments and Wednesday we have technical chart videos. These can be viewed by signing up at AgMarket.Net Intel Sign Up or fell free to call us and talk to a real person 844-4Ag-MRKT (844-424-6758).
Reach Bill Biedermann at 815-893-7443 office, 815-404-1917 cell.
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