Virtually nothing is planted in the heart of the Corn Belt, but the market already faces what could be a crucial test. History suggest corn will pass that test, setting up pricing opportunities for new crop into the spring and summer.
But bad things sometimes happen to good markets. So to control risk, growers should have most of their old crop inventory priced. Officially, I’ve recommended being 90% protected on 2017 production, hedging with futures or HTAs to wait for basis to keep firming. And being 100% set isn’t a bad idea, either for those with a profit who are ready to move on.
Seasonal trends for July futures don’t suggest a lot of upside now. The trend for December puts new crop at a vital junction. In years of normal production, futures on average head lower after the second week of April. That’s what happened a year ago, though the market did have a brief spurt for pricing in the summer.
In bullish years, the market keeps advancing, so maintaining an uptrend with new highs is important. The best chance for that pattern to continue into May should come on weather concerns, if the cold, wet pattern of the first half of April doesn’t end.
Of course, even in slow years, the crop normally gets in, and traders will assume farmers will be able to get the job done due to large, modern equipment -- until they don’t. Strong soybean prices could make the decision to shift more palatable – corn prices lag on both the soybean to corn ratio and acre of profit per acre basis already.
While USDA raised its forecast of old crop ending stocks by 50 million bushels April 10, the new crop balance sheet is shaping up to be much tighter if the government’s estimate for just 88 million acres is anywhere in the ball park. With average yields and decent demand, ending stocks for the 2018 crop could fall below 1.8 billion bushels, enough to take average cash prices closer to $4. That prospect, if it holds, should support rallies from $4.39 to $4.77, the selling target from my fundamental model this week.
Growers who are nervous about new crop can sell the carry to July 2019 to get closer to that range. Otherwise I recommend waiting until December tries to get there on its own.
The weather wild card over the next few months is not just in the U.S. A shift drier in southern Brazil already appears underway. If the trend spreads it could boost summer demand for U.S. corn, giving further impetus to rallies. Some local estimates are already 200 million bushels below USDA.
Otherwise, plan to make lemonade from lemons if the market sells off, buying some call option protection in case the market can muster a rally. On the sell side, bear-spreading the carry in the December 2018-July 2019 corn spread at 13 or better is another way to guard against weak harvest basis or a down turn in prices.
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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.