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Planting west of Kenton

Uncertainty in the market…

The USDA report from last week is old news, it’s all about the trade wars today. Plus, a new report from Reuters suggests the EPA secretly allowed a profitable refiner a waiver from the biofuels mandate.  All of this buzz caused significant market volatility.  Everyone is unsure what’s going to happen, so long-term effects are still unknown.

Still, the USDA report from last week found that the cure for low prices is low prices. Export pace, feed demand and ethanol grind continues to be strong for the old crop. Some farmers fed up with low corn prices were considering alternative crops with higher profits.  The recent USDA report indicated that farmers may be replacing 2 million corn and bean acres with spring wheat and cotton.  However, this survey was completed in early March when corn prices were much lower and spring wheat prices much higher. Some of the spring wheat acres end up in corn or beans. There is already talk of farmers switching some bean acres to corn because of this tariff on beans.

Rarely can the markets be discussed without mentioning weather, and right now it’s unseasonably cold.  It’s doubtful corn planting will start north of I-90 for at least 20 days until ground temperatures increase.  For example, the ground temperature on my farm in southeast Nebraska is 10 degrees below average. While this could be a market factor, farmers are planting faster than ever, so ultimately the cold may have little impact.

If usage and exports remain steady, corn may have some upside potential as long as there isn’t a record crop. The trade war will always be a concern, but ultimately, weather will be the deciding factor.

My Current Corn Positions

2017

Currently I have 35% of my 2017 crop priced with futures at $4.42 (this includes options and carry premium). The following additional options strategies are still open:

  • 17.5% of my ’17 crop will execute at the end of April, if May corn is above $3.70
  • 17.5% of my ‘17 crop will execute at the end of April, if May corn is above $3.85
  • 25% of my ’17 crop will execute at the end of June, if July corn is above $4.20
  • 15% of my ’17 crop is still unpriced

In reviewing these options, I could have 85% of my crop sold by the end of June for an average of about $4.15 against July futures. If the price of corn isn’t above the strike prices above at the specified times, I won’t have any additional corn sold but will keep the option premium collected that I can add to later trades.

I don’t think the corn market will drop a lot more at this point, but I’m willing to accept it as a possibility. If corn is trading above $3.60 at the end of June, I would likely still get at least $4.05 against July futures for all of my corn including options and carry premium.  If corn is anywhere above $3.80 in late June then I should get at least $4.15, and considering what the market has given me this year I will consider that a win.

2018

I only have 25% of my 2018 crop priced with futures at $4.18 and the following options positions:

  • 10% of my ’18 crop will execute at the end of August, if corn is above $4.10
  • 20% of my ’18 crop will execute at the end of November, if corn is above $4.20

I could have up to 55% of my 2018 corn priced at $4.18 if corn is at or above $3.90 against the Sep or Dec futures as the above options strategies come off.  This means I still need a price rally to get another 45% of my 2018 crop priced above breakeven levels.

2019

I have 10% of my 2019 crop priced with futures at $4.18

Bottom Line

Like everyone else, I want the board to continue rallying.  I want weather scares to help drive prices up. I want fewer corn acres planted.  I want the trade issue to be resolved without affecting corn.  But also like everyone else, I have no idea what, if anything, will affect the corn market in the long-term.  That being said, after the futures drop this morning, I’m relieved to have a plan in place.  My marketing plan takes into consideration that unexpected situations affecting the market are going to come up from time to time.  Therefore, I don’t think any of the recent news warrants any changes to my marketing plan, so I plan to stay the course.

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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