Something is not adding up with carryout and prices

This week last year versus this year:

Corn futures:

  • 2017 — $3.70
  • 2016 — $3.65

Carryout

  • 2017 — 2.3 billion bushels
  • 2016 — 1.7 billion bushels

Something doesn’t add up.

Basis has continued to slide lower and lower. Values are about 20 cents less than last year at this time, possibly adjusting to the irrational futures prices.

Another survey showed U.S. farmers plan to plant significantly more beans than corn in 2017. Acre estimates show corn and beans may be around 90.5 million each. If this happens, it would be a 4 million corn-acre reduction and a 6 million bean-acre increase.

Many “experts” say farmers “love” to plant corn and these estimates just won’t happen. I don’t think these “experts” have run the numbers, because farmers can pretty much guarantee a profit growing beans, while corn is shaky. Corn on corn farmers may be in the red at current price levels.

Personally, I think farmers will run the numbers and bean acres will increase next year. What does that mean for the markets going forward?

That is the billion dollar question. Weather through the summer and then yield at harvest will have the biggest impact.

While weather its unpredictable, widespread severe weather is unlikely. For instance, widespread severe droughts have only happened seven out of the last 30 years (22%).

Similar to weather, widespread severely low yields are unlikely:

  • 66% — Corn yield is at or above trend line
  • 12% — Corn yield is slightly under trend line
  • 22% — Corn yield is significantly below trend line.

If carryout and demand remain steady, the market may have some good upside potential if:

  • Trend line yields with reduced corn acres would put carryout under 1.6 billion (lowest since 2013). This could mean $4.50 futures.
  • Trend line yield with “expert” estimated acres would put carryout near 1.9 billion. This would make $4.50 more difficult without a major weather issue.

 

What about beans?

While South American production is still unknown, it looks favorable. The U.S. needs to plant over 87 million acres to maintain current stocks. A 90 million acre crop with trend line yields (i.e. 46 bushels per acre) would likely mean a small carryout increase and make a rally difficult.

While bean prices will continue to be volatile, the corn/bean ratio will likely keep bean prices from falling too far. For example, if corn trades at $4.25 this fall, even with the lowest ratio in the last five years, beans would still trade above $8.

Experts can try to predict the market, but no one knows for sure. Don’t get too caught up in all the talk. The experts don’t know what’s going to happen in the future any more than you do. All farmers can really do is have a marketing plan in place and price goals ready. I already have orders placed for 70% of my 2017 production. I always want the market to rally and when it does, I’ll take advantage. Bottom line, I want to be profitable every single year.

 

Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.

Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction. The information provided here should not be relied upon as a substitute for independent research before making your investment decisions. Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision. The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative. The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions. Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results. He can be contacted at jon@superiorfeed.com.

 

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