By Jon Scheve, Superior Feed Ingredients, LLC
The most recent USDA report showed some potential for the corn market with strong demand expected to continue. This could mean current corn prices are near a bottom. However, the great weather throughout June and early July suggests the national yield could be another record possibly exceeding 180 bushels per acre. If yields are then less than 180, a rally is likely, and if yields are higher than 180, prices will probably trend lower.
The USDA increased old crop and export usage estimates, which could have been bullish. Unfortunately, the trade war triggered the USDA to reduce future exports by more than 10%, meaning next year’s carryout could be substantially larger than current levels. This also assumed an average 48.5-bushel per acre national yield. With current weather, yields may reach 50 or even 52, which could mean sub $8 on Nov futures.
If the trade war would end soon and China continued buying U.S. beans, prices would increase quickly above $10. Unfortunately, it’s doubtful the differences between what both governments want will be resolved soon. China has said they will look for alternative protein sources and are willing to draw down on their bean stocks to ride this out as long as possible.
What are you going to do now?
I’ve been asked this question a lot over the past few weeks.
I’m 100% sold on my ’18 crop. With what I know today, I’m really happy I sold when I did. Right now I see no reason to get out my bean hedges. It’s impossible today to guess how the trade war will go or what final national yields will be to determine the bottom of the market accurately. So, I’m not making any changes.
I want and need bean prices to rally. If that happens it should pull corn prices higher.
With what I know today, I wasn’t aggressive enough selling my ’17 crop. Still, looking back there was never really a great opportunity to sell this past year at profitable levels. I still have 45% left to sell.
I’m nearly 40% sold above $4.20, which I’m happy about. But, unless corn rallies soon I’m going to shift these sales back against my ‘17 crop, leaving me completely unpriced on my ’18 crop. This may work out if the ’18 national yield averages less than 180 bushels per acre and the carryout is below 2 billion, then prices have some upside potential to them. If not, I’ll need to consider alternative solutions to reduce my losses on the price I take for my corn in ‘18.
There are a lot of hopeful maybes for farmers right now. Maybe the good weather will not continue through August and the national yield will be below 180, allowing for a potential rally. Maybe the tariff issues will be resolved in the next three to six months. Maybe Trump will fulfill his promise to help farmers with the tariff issues and provide some kind of support program. Maybe there is a production issue in another corn producing country that helps prices. Maybe wheat production around the world drops and usage picks up for that crop and pulls corn prices with it. Maybe El Niño makes an appearance next summer and drives prices higher due to unfavorable weather issues in the US.
Maybe the best thing to do right now is nothing.
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 email@example.com.