It’s easy to tell where farmers want to start selling new crop corn. December futures are hovering below $4, so far unable to break through that benchmark.
While $4 seems like a good place to start, new crop sales now must be made with caution. First off, $4 corn less basis in not a profit price for the average producer. Selling for a loss doesn’t seem like a sound business plan to me.
Moreover, growers can’t count on a significant ARC payment to bail them out in 2017. It looks like the benchmark revenue guaranteed for the average grower will be down around 25% in the coming year. USDA puts out county-level yields Feb. 23, which will provide a least a rough guess of what to expect.
Finally, with both ARC and Revenue Protection, growers are on the hook for losses until coverage kicks in. If yields suffer just a little the cost per bushel increases, making that $4 on the board even less desirable.
To be sure, there’s potential that $4 will look a whole lot better than prices a year from now if farmers harvest more record yields. The U.S. has posted above-normal yields four straight years. But we’ve put in six straight before, so it’s always a possibility.
Some of the potential for weather rallies was also eliminated by news forecasters in the U.S. say La Nino is over. With the equatorial Pacific in a neutral phase during the growing season, odds of a smaller crop are lower, but not eliminated. Mostly, weather becomes harder to predict.
I’m not wildly bullish on corn. With 2.3 billion bushels likely leftover Sept. 1 from the huge 2016 crop, it’s hard to forecast a big rally without weather. But July futures appears to be adopting the pattern seen in yields of rising prices, and December is following the path normally seen to post gains into March/April. My fundamental model points to a new crop selling range around $4.20 to $4.55. The bottom end of the range could come over the next six weeks, but the top end likely wouldn’t come into play until the growing season. Prices could set back this week with most charts diverging from RSI, which is not making new highs.
The early spring rally this year is a little about buying acres, but more about making sure growers don’t cut too much. But maybe the biggest cause of the gains seen over the past month came from investor buying. Those following commodity indexes, along with big speculators are buying. These outsiders are always looking for a good market, and if the charts look right 2.3 billion bushels may not matter, at least in the short run. But when the big specs head for the exits, the market can’t fall apart in a hurry.
The flashpoint could be USDA’s March 31 planting intentions. Before that, the agency updates its estimate of 2017 acreage Feb. 23-24, at its annual outlook conference. This estimate is a statistical guess, made by forecasting models, not surveys, but it usually garners some headlines.
While a go-slow approach is favored on new crop right now, growers should continue to chip away at old crop inventories with regular sales. Basis is still below average many places, where hedge-to-arrive contracts can be used. But bids are better at ethanol plants and in the eastern Midwest, where supplies aren’t as big. Growers should be careful about holding too much inventory unpriced or even without basis spotted. If the futures market does rally, a lot of corn can come to town in a hurry, as we found out last year when basis tanked.
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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.