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July 20, 2022
The most critical time of the corn growing season is upon us. We started the year saying there was no room for yields to be below 176 bushels per acre. That might have changed a little since USDA reduced demand, and political and economic headwinds with China seem hard to avoid without additional crop losses in the world.
The last USDA report estimated yield at 177 bpa and end stocks at 1.47 billion bushels. That leaves the industry with 320 million bushels above pipeline requirements. That equates to 3.9 bpa nationally as a buffer before identifiable rationing would be needed.
Current forecast suggests jet streams moving back over the Rockies and a reprieve from heat and possible showers to return to the Corn Belt at peak pollination. This would provide favorable crop conditions, yet we still need to admit that some damage to early crops from Kentucky to Nebraska have already occurred.
It is likely that the best case scenario is a 175-177 bpa yield. If next week’s rains are disappointing, best case scenario yield would remain in the 172-177 bpa range.
If we call it 174.5 bpa right now, end stocks project to 1.265 billion bushels. This would not require rationing unless another production area fell short and pushed demand toward the U.S.
With the E.U. experiencing record temps, prices should be well supported until the market can determine the outcome of European crops and how/if demand is forced to seek U.S. supplies.
Thus, until we know more information, there is no real reason to think futures will need to trade above $7.00, nor a reason to trade below $5.00.
If yields were to fall below 173 bpa, or if the E.U. lost 15 mmt or more of corn production, then traders would likely need to move prices to a rationing price level. Determining that price will depend on many things. For example, the dollar value and if the hedge funds are putting the inflation hedge back on, just to mention a couple of factors.
If rationing is not required, then the deflationary fed policy that is driving traders away from the inflation-based food and fuel hedge will likely cause price disappointment for those who have not sold.
To disclose our recommendations, our clients have been advised to sell 60% as the market rallied and we bought calls to protect the top end of the market. We believe that to answer the question the producer is asking is to get out a calculator:
Estimated yield X Fall price = Y revenue
Y – cost of production = Net Gross Revenue (NGR)
If NGR is acceptable, then sell. You can always manage an extreme move with an option. Concentrate on managing your business right now.
The time has come. The RISK of production that drives price is coming to an end as we enter peak pollination season. So, if you have not sold, get out your calculator.
We invite everyone to feel free to call us or to sign up for a free trial of our weekly market intel at AgMarket.Net.
Reach Bill Biedermann at 815-893-7443 or [email protected]
The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. AgMarket.Net is the Farm Division of John Stewart and Associates (JSA) based out of St Joe, MO and all futures and options trades are cleared through ADMIS in Chicago IL. This material has been prepared by an agent of JSA or a third party and is, or is in the nature of, a solicitation. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading information and advice is based on information taken from third party sources that are believed to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. The services provided by JSA may not be available in all jurisdictions. It is possible that the country in which you are a resident prohibits us from opening and maintaining an account for you.
The opinions of the author are not necessarily those of Farm Futures or Farm Progress.
Hedging strategist, AgMarket.Net
Bill is a well-known speaker, presenter and commodities advisor. In addition to trading commodities for 40 years he has testified before Congressional hearings, CFTC hearings, served for the U.S. State Department AID and co-founded one of the largest IB Brokerage and Agricultural Economic Research firms in the U.S. Bill graduated from Illinois State University with majors in Agricultural Production, Ag Economics and Ag Education and farmed from 1973-1988.
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