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Market’s next move: $6 corn -- or $4.50 corn?

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Future price direction hinges on weather and next week’s USDA report

It is that time of year when crops are growing and weather uncertainty is on everyone’s minds. 

North Dakota, South Dakota, Minnesota, and Northwest Iowa are desperate for rain, while the eastern Corn Belt has received beneficial precipitation. Will it be a record crop? How much yield potential is being removed due to the lack of rain in the Dakotas? Can the Eastern Corn Belt yields offset potential yield reductions in the Western Corn Belt? Will the newer hybrid seeds surprise everyone and produce better than expected yield?

This is also the time of year where trade gets increasingly volatile ahead of the June 30th Quarterly Stocks and Planted Acres report. In fact, the price volatility and market uncertainty heading into the report is the most I can remember in my 20 years in this industry.

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Out of the past 17 years:
5 out of 17 years, corn planted acres decreased from the March report to the June Report
12 out of 17 years, corn planted acres increased from the March report to the June Report
The average increase of acres for those 12 years was 1.125 million acres

 

Disagreement over planted corn acres

There is a severe disagreement in this industry of where the total planted acres number for corn will be pegged at in the upcoming report. The March 31 Prospective Plantings Report pegged corn acres at 91.1 million acres. Heading into the June 30th report, the industry is looking for an increase of U.S. planted corn acres; anywhere from 92 million acres to 97 million acres.

When comparing history between the March Prospective Acres versus the June Planted Acres, 12 out of the past 17 years corn planted acres have increased from March to June. The average increase of acres for those 12 years was 1.125 million acres.

If the acres come in between 92.5 and 93.5 million acres, traders will quickly start trading weather as that type of increase in acres is largely expected, and priced into the market. However, if acres come in higher than 94 million acres, then corn futures prices will likely sink lower.

That 94 million acres and trendline yield swells ending stocks back up, closer to 2 billion bushels. If acres come in at 94 million acres, national corn yield would have to be less than 172 bpa to make ending stocks smaller than the 1.357 billion bushels currently pegged on the June 10th USDA report.

Dates used for this example:
The June USDA Planted Acreage/Quartery Stocks report through the July USDA WASDE report

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Quarterly Stocks equally important  

From the Quarterly Stocks standpoint, I am curious to see where the USDA pegs stocks for “on-farm” and “off-farm” at elevators/end user facilities. One thing that is different this year than the past 6 years is how little corn I truly believe is in farmer hands right now.

For example, over the prior six years, during late spring and early summer months when I have talked  with various producers across the Midwest, many had told me that they were still holding onto approximately 25% of old crop corn, waiting for a summer rally to complete their sales. This year, when I  have had those same conversations, the resounding difference is that most producers are either out of old crop corn, or are down to “gambling stocks” (less than 5% of remaining old crop). Farmers took advantage of the fabulous prices during the fall, winter, and early spring and moved corn! The question is, is that corn gone and used via ethanol, feed or export? Or is it still out there, just sitting in an end user’s storage facility?

Seasonals

One last item to be aware of. As many of you know, one of the best windows of time to traditionally sell grain occurs annually between June 1 and July 15. Specifically, the market traditionally offers one last little glimmer of price selling opportunity in early July due to a combination of USDA reports and hot summer weather forecasts as the corn crop heads into pollination.

Looking back over the past 11 years, if you look specifically at the price low on the day of the June Quarterly Stocks/Planted Acres report, and then look at the price high on the day of the July USDA WASDE report (approximately two weeks later), there are decent odds of a corn price increase.

8 out of the past 11 years, the price of December corn futures has rallied during that two week window. The average rally is 46-1/4 cents. If you take out the tremendous rally from 2012, the average rally is 35 cents.

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Continue to focus on cash sales, and make sure you have a good handle on the crop insurance you purchased this year. If you are of a bullish tone, consider fixed risk strategies like buying call options or  bull call spreads, (where you buy an at the money call, and sell an out of the money call). If you are concerned that prices may fall lower, then start looking at buying puts, or bear put spreads (also a fixed risk position where you buy an at the money put, and sell an out of the money put).

History would suggest that the coming weeks will have substantial price volatility for grain futures. Which way prices trade largely depends on Mother Nature and the USDA.

 

 

Reach Naomi Blohm: 800-334-9779 Twitter: @naomiblohm   and [email protected]

 

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