The corn market is trying its best to prove a late spring low is history thanks to another friendly report from USDA. But after a shift to a bearish seasonal trend, rebounds this summer may be fast, and perhaps furious, if and when they come.
As a result, growers should study hard now to prepare a list of alternate strategies for selling, depending on which of a couple scenarios play out. Think of those “choose your adventure” books that were popular in the 1980s, because there’s no one-size-fits-all way to tackle what could be yet another challenging market.
Inability of December futures to hold $4 had the market back on its heels, producing nearly a 10% break before prices finally turned around. Initial upside targets are easy to spot on the new crop chart: the 50% retracement around $4.085, the gap at $4.10, and the 50-day moving average near $4.12. Add in 15 to 20 cents or so carry to July 2019 and the price is one that can at least be hedged for initial sales.
Getting December back to highs at $4.295 may take some heavy lifting from weather. Watch for a big spike in implied volatility increasing the relative cost of options for one as shorts and end users scramble for call option coverage.
Growers owning calls may find it easier to sell. One alternative is to pick up some of that coverage now. This is a cost, and it’s never cheap, so don’t expect the insurance to be perfect. Paying a dime or less for a September $4.20 call would give upside protection against a major move until after USDA’s August crop report and first survey estimate of production.
Proceeds from a rally could also be rolled into puts if your yields are too uncertain to sell. Short-dated new crop or September puts might be another choice on rallies, though they’d have to be rolled to sales.
Last week I also advised taking a look at bull spreading the December 2018/July 2019 carry spread if it hit 22 cents, which it did briefly June 12. Again, if the market rallies, proceeds could help defray put protection.
USDA’s positive numbers for corn in the monthly supply and demand report could make any rallies take hold if weather threatens. As expected the agency cut its forecasts of old and new crop carryout due to stronger exports and ethanol usage. While the government may be too optimistic on its forecast of demand, my model shows a selling range this week of $4.47 to $4.86 if yields are only average.
Beauty, and yield potential, are in the eye of the beholder. Corn ratings remain historically quite strong though they slipped slightly this week. These translate into yield potential of 183.5 bushel per acre if the ratings hold into harvest. Based on conditions in the second week of June historically, the ratings suggest an average yield of 181 bpa in a range from 166 to 195.
Views from space by satellites may or may not agree. The closely watched NVDI maps suggests a very good crop matching ratings. But Vegetation Health Index maps, though improving, are well behind last year, when the percentage of the crop rated good to excellent was 10% less. The difference on the VHI may be due to the fact that farmers planted more soybeans than corn this year, so there’s less vegetation to measure this early.
Dry pockets remain, however, especially near the I-70 corridor from Kansas City to Central Illinois, and perhaps further east. Persistent temperatures in the 90s into Father’s Day could get the market’s attention if rains forecast for next week peter out.
It’s an outlook with a lot of ifs. ‘Tis the season.
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Senior Editor Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Adviser. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on corn farming, basis, energy, fertilizer and financial markets feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.
For more corn news, corn crop scouting information and corn diseases to watch for, follow Tom Bechman's column, Corn Illustrated Weekly, published every Tuesday.