$4 corn or $8 corn? $10 beans or $20 beans? It all depends on weather and export demand

By Jon Scheve, Superior Feed Ingredients, LLC

New crop futures prices

Dry weather concerns in the Dakotas and possible ridging in the western corn belt later this month pushed some risk premium into the markets the past few days.  December corn closed at $5.91, up 91 cents in 6 trading days. That leaves the market 50 cents below the highs from a month ago.  November beans also rebounded $1.10 in those same 6 days and is only 30 cents from its high a month ago. 

Old crop basis prices

Corn and bean basis has dropped significantly among end users throughout the entire Midwest.  

Corn began to decrease when southern plains end users started cancelling some of their corn purchases and replaced it with wheat in the feed rations.  That pushed those corn sales back up the marketing chain and into ethanol plants looking for coverage through June and July. 

Bean basis fell because most processors covered their needs through July and pulled back bids once old crop futures rallied above $16. With Brazilian beans over a $1/bushel less than US beans in the world market chances are there were likely some switches in origins on exports. As they say, the cure to high prices is high prices.

Inverse from old crop to new crop

With 90 cent inverses from the July contracts to new crop contracts for both corn and beans, there is no incentive for commercial hedgers to carry product any longer.  Therefore, many dumped their remaining positions over the last 2 weeks.

Old crop demand

Late July, all of August, and the first part of September demand remains uncertain.  It’s unclear how many bushels remain in on-farm storage because it seems as if there is very little left.  End users throughout the US are claiming they have plenty of coverage on.  However, the massive market inverse suggests that’s not what an end user would have done. Inverses usually suggest it’s better to buy later than it is today.  The basis market and spreads may have more surprises in a month for both crops.

Have we seen the highs Yet?

This week one analyst said the market highs were in and farmers should sell everything because a huge price drop was coming.  The next day another analyst said the current market dynamics and weather is like 2012 and higher prices were probable.  That is not very helpful because if either of those are correct it could mean corn prices go to $4 or $8 and beans could be $10 or $20.  Going forward, weather and export demand, both extremely uncertain at this point, will have huge market impacts.  This likely leads to market “fireworks” well after July 4th.

Please email jon@superiorfeed.com with any questions or to learn more. 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.

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