The calendar may say it’s the month of May, but it might not feel like it. Corn planting progress across Iowa for the week ended April 28 was 21% complete and only 15% nationwide. That compared to a five-year average of 26% for Iowa and 27% for the U.S., respectively.
Using data since 1987, the corn-planting pace for the end of April would rank 2019 tied with 2018 as the sixth-slowest corn planting pace for the end of April.
There wasn’t much improvement in planting for the week that ended May 5, as heavy rains drenched much of the central Corn Belt. As of May 5, Iowa farmers had 36% of the state’s corn planted versus a five-year average of 51%. USDA pegged U.S. corn planting at 23%, running behind the five-year average of 46%.
University of Illinois economists have looked at the 32-year period from 1987 to 2019 and note that the six years for “latest corn planting” in the U.S. are 2018, 2008, 2011, 1995, 1993 and 2013. The average final corn yield for these years was down 2.4% from the prior year. However, the data is skewed by 2013, which was coming off the 2012 drought, and 2013 actually had a 28.7% increase in yield.
The “up” years produced a yield that was 15.4% above the previous year. The “down” years had a yield that was 11.3% below the previous year. The average yield compared to trendline in those six years was down 6.4%.
Below-trend yield with late planting
A slow planting pace through the end of April favors a lower yield compared to the previous year and versus trendline, but there have been exceptions to both.
Applying the percentage changes from the six years outlined in this study produces a yield range of 164.7 bushels (average change from the trend of 176.0 bushels) to 172.2 bushels per acre (average change from prior year, which is 176.4 bushels for the trend).
According to this recent research released by the University of Illinois economists, the key is when late planting is 10% or more above average. If this occurs, the chance of the U.S. average corn yield being below-trend yield is 83%. The average deviation from trend yield is minus 6.1 bushels per acre. There is a significantly elevated probability of a below-trend corn yield in 2019.
Present USDA projections of a U.S. average corn yield of 176 bushels per acre will likely be reduced to 170 bushels per acre or less. It is important to recognize that good summer weather conditions can offset the projected negative impact of late planting on the national average corn yield. However, history indicates the probability of this happening is not very high if wet conditions in the Corn Belt persist through mid-May.
Selling on weather scares
Selling into weather scare price rallies in the spring months has worked well over the past five years. However, it is much easier for farmers when the weather scare is in some other region of the Corn Belt. With the continued delay in corn planting, we can expect short covering of corn futures contracts to occur. This is when speculative commodity traders “buy back” their short futures positions to protect their profits earned from earlier “short futures” sales.
Two primary tools help capture the potential for an increase in the nearby July futures contract. This can be accomplished by working with either your grain merchandiser or your commodity broker.
One is to sell cash corn on a July corn basis contract, also called a “fix futures later.” However, this leaves downside futures price risk. Another tool is to establish a minimum price contract. This is the sale of cash corn, and the purchase of a call option, preferably as close to “at-the-money” as possible to benefit from a futures price rally. In using these tools, the futures price is not set until after mid-June when the July call option expires, or when the July corn futures contract goes into delivery.
Odds for higher July corn futures
Since 1980, the odds for July corn futures to be higher or lower during the month of May are evenly split with July futures gaining value 18 times. On average, corn futures during May have rallied 15 to 20 cents during those 18 prior years, with the best rally in 2009 when futures rose 33 cents.
Farmers should not expect a big rally in July 2019 futures, and they should have a plan to make sales. Limiting the upside potential for the July futures price is the estimate that U.S. ending stocks are expected to exceed 2 billion bushels come late August.
By mid-June, we can expect export competition from Brazil, due to its big crops and currency advantage. That means a farmer should begin looking for sales opportunities when July corn futures rise above $3.75 and expect to see lots of resistance above $3.85. The December 2019 corn futures should see a much larger price rally. Consider new-crop sales when December futures reach $3.95 per bushel, with resistance occurring every 5 cents higher.
Johnson is an Iowa State University Extension and Outreach farm management specialist. Email email@example.com.