Farmers may not get what they want from the market this year. But they’re getting what they expect.
With no new source of demand growth, large surpluses here in the U.S. and around the world make this very much a supply driven market. Farmers in the U.S. and some other growing regions are doing what they can to change that by cutting acreage. But without a substantial reduction in yields stocks won’t fall fast enough to keep the surplus burdensome for another year.
Farmers haven’t been offered much this year in the way of new crop profits. But 76% of those we surveyed in March they’d they expect a weather rally to sell this summer. The odds favor such a rally, however brief. But it could be a long time coming.
A slow start to planting is helping, but the pattern of recent cycle lows suggests more weakness ahead into early June. That too isn’t unusual, and could offer a chance to pick up some cheap call options insurance for those who need it as a backstop for selling when and if the rallies come.
Implied volatility in the options market plunged after the Easter holiday passed without a major surprise. While nearby volatility is just 13.5%, new crop is still 23% to 24% for near-the-money options. With little upside at the moment, letting some of that time value leak before buying is probably prudent.
In the meantime, old crop is a more pressing issue. Our survey showed farmers still owned 40% of their record 2016 crop, 31% on the farm and the rest in town. That’s 6 billion bushels that still must be cleaned out before the combines start rolling.
I’ve recommended being 85% priced, with another sale advised Monday. Basis remains weak historically, thanks to the surplus. But bids are have at least firmed many places. Selling flat price in weekly installments may be the best strategy now, though there’s still 6.5 cents carry to July for those who want to hedge and hope. The trouble with that strategy comes if the futures market does rally, which will bring out a whole lot of corn.
Quibbling with USDA’s estimate of 2016 crop supply and demand won’t do much good at this point. The agency as expected increased its forecast of usage for ethanol in its April 11 report. This was offset by a cut to feed usage, justified by bigger than anticipated March 1 inventories. The next potential change in feed usage won’t come until the next stocks report June 30. By then, the last thing the market may be thinking about is old crop.
Exports look stronger than USDA forecasts, but not but enough to make a difference. The only thing that could change that outlook is lower production out of Brazil’s second crop. It is starting to turn seasonally drier, but it may be too much to expect two down years in a row from the safrinha.
As for new crop overseas, France is the only place looking a bit dry right now, though that’s helping planting. China is starting to pick up better moisture on its North Plain. Though growers there will cut acres this year, the government’s huge surplus probably will limit any need for large imports unless yields really suffer. Even then, China has plenty of places it can buy from.
For the complete version of this outlook, including supply and demand tables and graphics, along with price charts, click the “Download” button below.
More from Farm Futures:
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.