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Europe, Brazil and the August Supply and Demand Report

Could it be time to justify some price risk in your operation?

Corn prices are up this morning as bulls continue to talk about strong U.S. demand and ongoing pockets of dry conditions. There's also continued talk of complications in Europe and parts of the Black Sea region. There's also the ongoing complications with logistics and freight inside Brazil, where producers are having a tough time getting their needed inputs for the upcoming crop year.

Bears are pointing to cooler temps here in the U.S. and the very real possibility of producers harvesting another record U.S. crop. The nearby debate moving forward will be the USDA's upcoming August Supply & Demand report. Bears argue that the USDA is going to be forced to raise their yield estimate by +1 or +2 bushels per acre. There are some who believe the USDA could bump it even higher. I personally don't think that will happen, but there are analyst and traders who believe this crop could ultimately yield +180 bushels per acre.

Remember, last year in the USDA's August report, the season’s first survey-based corn yield forecast, the USDA lowered their estimate from July's trend-based protection of 170.7 down to 169.5. From August forward the yield continued to increase by +7 bushels per acre, ultimately ending at a new all-time record high of 176.6. Bulls believe those bushels that increase because of better yield could be offset by a significant adjustment higher in the U.S. export estimate. In other words, a +150 to +200 bushel increase in production based on an increase in yield, could easily be negated by a +200 to +300 bushel increase in exports.

From a technical perspective, we are now about to enter that area of stiffer resistance in the DEC18 contract, up between $3.80 and $3.90. Support seems to remain in the $3.50 to $3.60 range. This has been a pleasant bounce from the bottom and as a producer, I'm now taking a much harder look at reducing nearby price risk. Make certain you are fully considering total crop revenue based on latest real-time yield estimates form out in the field.

For producers who are going to enjoy a big yield and extra bushels, your overall crop revenue on a per acre basis might now justify reducing some price risk?

In other words, if you were conservatively estimating a 170 yield and prices were at $4.10 per bushel, that would have generated $697 per acre in gross revenue. If you now estimate a more realistic 185 bushels per acre with a price of $3.80 per bushel, that generates $703 per acre.

I'm also hearing the "basis" has improved in many areas, so that might provide a slight edge in your updated numbers. 


TAGS: Marketing
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