When does it make sense to sell again?

Corn has moved 20 cents off the lows in the recent weeks.  We seem to be range bound yet and lots of farmer movement has been noted across the U.S.

Farmers have asked me lately when it makes sense to sell again.  There is no easy answer because of all the variables:

• What are their breakeven costs?
• What are their goals?
• Where do they think the market will go?
• How much old crop do they have left to sell?
• How much new crop do they already have sold?

Many farmers have a breakeven point of $4.25 futures for new crop using Dec corn futures. Rallying to $4.25 Dec from the current $3.90 level would place old crop near $4. It’s important to remember that old and new crop corn are intertwined now, making it difficult for the relationship spread to change for the rest of the season.  At this point, quite a few farmers are willing to sell old crop corn before $4. That could keep the market 10 to 20 cents lower than many farmers goals/breakeven.

What could cause a market swing?

The two big ones: one, a shortage of acres in the March intentions report or in the June acreage estimate and two, a below trend line average yield this summer which is near 164 bushels per acre on corn at 45 bushels per acre on beans.

What would cause big adjustments to planted acres in 2016?

Each crop is a little different and has its own potential issues:

• Soybeans – It’s more cost efficient to plant corn versus beans west of the MO river.  East of the MS river, it’s about equal.  It may be a bit more profitable in areas of Ohio, so farmers there could pick up some bean acres dropped from the western belt.  Despite it not making financial sense, some farmers may decide to plant beans to reduce upfront inputs costs (vs corn).
• Wheat isn’t a profitable option for many over corn or beans.  This could shift some acres to either crop
• CRP acres could increase at the expense of all grains. However this would likely be a shift of marginal ground that produce low yields.
• Milo acres might be changed back to corn.  The lack of large Chinese demand (like a year ago) makes the profit levels less desirable than growing corn. This could be an area where acres that were shifted away from corn in 2015 will be shifted back to corn, potentially adding one million corn acres.
• Alfalfa and hay may be another option for some, but will not likely have a big effect on overall corn or bean acres.

I doubt we’ll see an corn acre decrease in 2016, while beans are uncertain. Current acre estimates are just under 90 million for corn and 84 million for beans.  A move of more than 1 or 2 million acres in either would be a catalysis for moving the market.

What will yields be?

Until weather can be predicted with 100% accuracy, it will always be the part of the equation that causes market volatility.

Corn – With good growing conditions, $3 corn may be a reality.  A drought could bring $5.  Weather forecasters anticipate normal conditions right now, but a weather scare could still bring $4.25 futures.

Beans – Average yields could bring bigger carryouts.  This means prices under $7 without a weather event are possible.  On the flip side, a drought could bring $11.  Bean prices worry me more than corn, and it may be August before we know anything.

Are there other issues?

• There is still a lot of milo in storage, that could ultimately hurt corn demand.
• DDG is not being imported as quickly by China as in the past
• Crude Oil prices continue to be sluggish, which may hurt ethanol margins and reduce corn demand.
• Soy meal demand isn’t strong, hurting chances for a bean rally.
• World stocks of corn, beans and wheat are extremely abundant
• World stock markets are weaker and volatile
• The strong US dollar hurts exports.

Is there positive news?

There is still plenty of time for weather issues in South America.  The record short by the funds could also cause a brief market swing.  And….there can always be surprises unimaginable today causing twists and turns in the market.

The key is to plan ahead and be ready.  I base my marketing strategy on average market conditions and estimates.  This includes taking advantage of market carry and basis premiums because in most years there are additional profits available to me. But, my marketing plan is also set up to take advantage of surprises and rallies in the market when they happen to optimize as much potential as possible for my farm operation while keeping my overall risk in check.

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.

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