April 20, 2023
Grain producers holding inventory of old crop corn are heading into spring and summer with one major question: “When should I price the rest of this old crop in my bin?”
Cash markets have been firm with basis levels strong for most of the Midwest as old crop ending stock supplies for corn are indeed snug. Because of tight supplies, many producers in the Midwest are able to receive near $7 per bu. cash corn for nearby delivery.
If you have old crop corn and are looking to sell, you will notice that the May 2023 futures contract price is inverted over the July 2023 futures contract by approximately 35 cents. The market is saying it wants your corn now.
The May 2023 corn futures contract expires on Friday, May 12, 2023. First notice day for the May futures contract is April 28. In the days leading up to that, your local elevator will change their bid price to reflect the July 2023 contract as the May 2023 contract will be in its delivery period.
Many farmers are taking note of the inverted market and are asking, “Will the July corn futures rally up to where the May futures prices are trading?” While nothing is guaranteed, it is important to note how July corn futures performed (during the May futures delivery and expiration timeframe) the last time we saw inverted markets, which was in 2021 and 2022.
What happened in 2021?
In 2021, on first notice day for May 2021 corn, the May contract had a low price that day of $6.99-1/4.
On that same day, July 2021 corn futures had a price low of $6.45-1/4. The market was inverted by 54 cents.
Over the next two weeks, when the May 2021 corn futures contract was in its “delivery” time period, May 2021 corn futures rallied as high as $7.75. During that same time period, the July 2021 corn futures rallied as high as $7.35-1/4.
The May 2021 corn futures contract rallied 75 cents in that two-week time period and the July 2021 corn contract rallied 90 cents in that same time period.
What happened in 2022?
2022 was different. In 2022, on first notice day for May 2022 corn, that was actually the price high for the May 2022 contract, peaking at $8.27.
On that same day, July 2022 corn futures also had its contract high price peak of $8.24-1/2. Essentially, there was very little price inversion, only 2.5 cents.
Over the next two weeks, while the May 2021 corn futures contract was in its “delivery” time period, both the May 2022 and the July 2022 corn futures prices lost nearly 50 cents of value.
No easy answers
What to do? Price now? Roll to July? Re-own? Do nothing?
As you can see from the above, there is no Holy Grail to finding the peak to a market, or knowing how an inverted market will continue to fare. Finding the perfect timing to cash out on old crop corn is flat out nearly impossible, especially in years like this where old crop corn carryout is tight and supportive to prices, yet new crop prices are hesitant to rally as a potentially large U.S. corn crop is being planted and will be available to the world in five or six months.
Making a cash sale and buying a call
If you decide to make a cash sale in the coming days or weeks, that’s great! You’re likely taking advantage of near $7.00 cash corn, which is quite profitable for most farmers for that old crop.
You might decide that cash sale is good enough, and you can be content and satisfied with that value.
If you are an individual that makes the cash sale now because you have the time to move the grain, or just need some cash flow, but will be upset with yourself if the market trades higher due to unexpected poor weather here in the United Sates or Brazil, then consider buying a corn call.
If the futures market trades higher, you can participate with that potential weather rally on paper. June 2023 calls are available and expire on May 26, 2023. July corn calls are also available and expire on June 23, 2023. The cost can very anywhere between 10 and 35 cents per 5,000 bushel contract (plus commissions and fees). When you buy a call, there is no margin call.
Buy a put, yet leave your upside potential open
If there is a true weather event here or in South America, one could argue that a re-test of $8.00 old crop futures could potentially be in the works. Currently the weather in Brazil on that second crop, the safrinha crop, looks good, so it would truly take a dramatic weather event to make the market rally.
If you are in this mindset of a potential rally, yet do not want to lose the value in front of you, consider buying a put. This gives you a price floor but leaves your upside wide open for you to make a cash sale down the road on a potential rally due to a weather scare.
June 2023 puts are available and expire on May 26, 2023. July corn puts are also available and expire on June 23, 2023. The cost can very anywhere between 10 and 30 cents per 5,000 bushel contract (plus commissions and fees). When you buy a put, there is no margin call.
Wait and see. Hope and pray. Get busy with planting and forget about it. Assume basis will stay strong all summer because the local market is deficit corn. These are sentences that I have heard over the past two weeks when talking strategy with producers regarding when and how to market old crop corn.
They all essentially mean, “I’m not sure what to do, so I’m gonna do nothing.”
Not my favorite strategy. Because if the market rallies, often times there is not a plan of action to know when or what price is the target for those cash sales. Or, should prices fall, there is not a plan for making sales either.
There will be many moving parts to the market in the coming weeks: U.S. planting pace, the May 12 USDA report which will have both old and new crop information on it, weather watching in the United States and Brazil along with keeping an eye on demand.
All I can encourage you to be aware of is that in most years, the summer price high for corn will occur sometime in Mid-May to early July. That is a broad window of time, so you really need to be aware of all of the market fundamentals occurring and have targets working with your elevator to make those cash sales in the coming weeks.
Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.
The opinions of the author are not necessarily those of Farm Futures or Farm Progress.
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