Bullish or bearish as planting season wraps up?

Last week the USDA published the first crop conditions report for 2017. This report is really irrelevant because historically it has very little correlation to final yields. No crop is made or lost in May. Weather will now be driving the market with the most important dates being 6/15 to 7/15. As a rule, hot and dry is always a bigger concern than cold and wet. Until mid-July the market will react to the two-week weather models that adjust twice a day.

There are rumors of about 1.5 million acres being lost to prevent plant. While possible, this isn’t necessarily all that bullish unless the national yield drops below 168. Trend-line yields suggest that with normal weather throughout the Corn Belt, yields will be above 168.

Keeping perspective

Advisors often suggest that the USDA estimates are unrealistic because they would require farmers every year to produce yields that are equal to their second or third largest harvests ever. This can seem daunting to farmers, and may skew their thinking that USDA estimates can’t possibly be accurate.

However, after reviewing overall trend line yields for the past 20 years, this does happen most of the time. Every year, farmers usually produce a national yield that is within the range of the third biggest yields ever to that point. And, there is no indication that this upward trend-line is slowing down. There were three noticeable exceptions. Obviously in 2012, yields fell short of any records. The other two years were 2002 and 2011 when yields were within the seventh highest on record. Two other years, 1997 and 2010, just barely missed being the third largest yields to date.

Sometimes farmers are so fearful of low yielding crops that they miss the big picture that yields continue to climb. The odds suggest that we will grow a good crop in the country every year. It’s important to keep this in mind when developing long-term grain marketing strategies.

Bullish or bearish?

Farmers often ask if I’m bearish or bullish right now. The answer: I’m neither.

Currently I’m hopeful that some weather issue(s) can help produce a market rally, so I can get more profitable sales on for 2017. Still, I’m cautious of “talk” suggesting that the market HAS to rally for whatever reason. Without a true production problem due to heat or dryness, a market rally over $4.20 seems unrealistic.

My current positions

I often describe the rationale and detail behind individual trades I make throughout the year. Since normally these trades only represent about 5% to 10% of my actual production for a given year, it’s difficult to understand my overall position. Farmers should always roll up all of their trades to determine overall positions. So, in an effort of full transparency, I’m sharing my current positions.

POSITION – CORN

2016

2017

2018

Corn Sold

87%

10%

5%

CBOT Price Average

$3.94

$4.00

$4.00

Market Carry

$0.23

$.25 est

$.25 est

Basis on Farm

$-0.45 est

$-.30 est

$-.30 est

Options & spread profits

$0.23

Cash Price

$3.95 est

$3.95 est

$3.95 est

With current cash corn worth $3.40 in my area, I feel pretty good about my situation.

Some notes about my position:

  • I’m viewing my futures and options protections as corn sold.
  • I do not have my short call only or straddle positions included in these numbers unless the market is above their strike price and range.
  • I do not sell cash contracts until I look my basis down. Currently, my basis is set on only 66% of my 2016 crop and none of my ’17 and ’18 crops.
  • My options and spreads profits are calculated as a total of all premium, minus commissions divided by my total 2016 crop.
  • 2017 Market carry and basis estimates are based upon averages received for the last few years.

I never plan for option or spread profits until I actually make them.

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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