Farm Progress

Bulls continue to point towards corn being traded below the cost-of-production as a reason to be a longer-term bull.

Kevin Van Trump, Founder

September 8, 2017

2 Min Read

Corn prices remain range-bound, despite the EIA reporting weekly ethanol production at its second highest level ever. There's also talk circulating that the USDA needs to adjust both U.S. exports and ethanol production estimates higher to account for the strong demand.

Bulls continue to point towards corn being traded below the cost-of-production as a reason to be a longer-term bull. Unfortunately, many seasoned professionals say, who cares? We've historically traded corn below the cost-of-production for a much longer period of time than we've traded it above the cost-of-production. In other words, just because prices are cheap doesn't necessarily mean prices are going to rebound higher any time soon.

Simply ask your' father or grandfather how many times they've farmed when cash prices were below the cost-of-production? I promise it's more than most realize. I also believe we are starting to see much more disparity and variance in "profitability" across the country. For example, I spoke for the Nebraska Bankers Association yesterday, and the bankers to the West seem to be seeing much more problematic financial conditions on the farm than those to the East.

I'm hearing similarities and wide ranging variables in profitability across farms in the Dakotas, Kansas, Missouri, Minnesota, Arkansas, Tennessee, etc... With more "contract farming" of specialty crops and seeds, we are also seeing much more extreme variations in the "basis" and bottom-line profitability. We've also seen many more extremes in weather variabilities this season. Meaning you might have pockets this year where production struggled and at the same time the basis might be weaker than normal.

Hence, I think some farmers and bankers in a few unfortunate areas are going to be facing extremely tough decisions in the days ahead, especially if corn prices are unable to breakout of their current trading range. Obviously, Tuesday is going to be a big day as the USDA releases their latest estimates. I suspect like most, the balance sheet tightens on an increase in demand and bit lower expectation for total U.S. production.

The latest drought monitor shows little change from last week, but still indicates that almost 50% of Iowa and just over 35% of Illinois is experiencing some type of drought like condition. Even though I suspect the average yield in some of our larger U.S. production areas will be lower compared to the past couple of years, I have to believe both domestic and global supply stays above levels that make the bears nervous.

I think it's going to take something other than the traditional fundamentals to shake the bears. Those type of headlines probably don't have much hope until mid to late-October. As a producer, I want to keep hedges in place and stay patient through the next 30 to 45 days. As a spec I still believe we are range-bound. Buying cheap volatility, looking for a breakout later in the year might make some sense...  As you can see form the historical data and averages I included below, the U.S. corn harvest is starting to more rapidly advance to the north. 


About the Author(s)

Kevin Van Trump


Kevin is a leading expert in Agricultural marketing and analysis, he also produces an award-winning and world-recognized daily industry Ag wire called "The Van Trump Report." With over 20 years of experience trading professionally at the CME, CBOT and KCBOT, Kevin is able to 'connect-the-dots' and simplify the complex moving parts associated with today's markets in a thought provoking yet easy to read format. With thousands of daily readers in over 40 countries, Kevin has become a sought after source for market direction, timing and macro views associated with the agricultural world. Kevin is a top featured guest on many farm radio programs and business news channels here in the United States. He also speaks internationally to hedge fund managers and industry leading agricultural executives about current market conditions and 'black swan' forecasting. Kevin is currently the acting Chairman of Farm Direction, an international organization assembled to bring the finest and most current agricultural thoughts and strategies directly to the world's top producers. The markets have dramatically changed and Kevin is trying to redefine how those in the agricultural world can better manage their risk and better understand the adversity that lies ahead. 

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