Home / Markets / Markets Analysis / Corn market / Producers take advantage of higher corn prices

Producers take advantage of higher corn prices

Agriculture.com Staff 04/05/2006 @ 6:30am

Friday's planting intention report rocked the market. The USDA reported a 7% increase in soybean acreage and a 5% decrease in corn acreage. It appears that farmers ran the numbers and decided that $6.15 for new crop soybean futures was a good deal considering current input costs. So with a surprising shift from corn to soybean acreage, December corn futures climbed 8 cents on Friday while November soybean futures fell nearly 13 cents.

Producers have been taking advantage of higher corn prices to make more cash sales. Deliveries have increased and with plenty of grain flowing basis has slid since the report. Looking at select markets in Iowa, where corn acreage fell by 2% compared to last year, basis has dropped anywhere from 2 to 11 cents since the acreage report was released.

In Illinois and Indiana, corn acreage is expected to decline by 6% and 7% respectively. It would appear as though the dramatic decrease in acreage in these states lent some strength to basis. Overall, basis did not fall nearly as much in these states and some locations such as Evansville, Indiana, have actually raised basis slightly. The average new-crop basis for these two states has also risen since the release of the report.

Where are corn prices likely to go from here? If the past is any indication, I think we can expect prices to move up for at least the next month. December corn futures have changed in the past after a planting intention report was released. In most all cases, the change in price on the day of the report is followed by price changes in the same direction in the coming month. In 1995 for example, corn acreage was reported as being 5% less than the previous year. On the day of the report, prices went up 1.25 cents. By the end of April, prices were 4.75 cents higher than the report date. At the end of May, prices were 18 cents higher than the report date. There were three out of the last ten ten years where prices moved in the opposite direction as the price change on the report day.

Consider if you had traded a December corn contract in any given year from 1995-2006, either long or short, based on if prices went up or down on the report date. If you had held that position for a month you would have earned 6.5 cents on average. The only year that would have resulted in a loss was 2005. After May 1 futures continued to move in the same direction during most years, however by May new information begins to enter the market and the trading strategy is less reliable.

Bottom line, corn futures will increase this month. With strong futures, weak basis is likely in the short run. Once producers are in the field and cash sales drop off, watch for basis to rally again.

©2005 CashGrainBids.com, Cash Grain Bids Inc. | All Rights Reserved.

Friday's planting intention report rocked the market. The USDA reported a 7% increase in soybean acreage and a 5% decrease in corn acreage. It appears that farmers ran the numbers and decided that $6.15 for new crop soybean futures was a good deal considering current input costs. So with a surprising shift from corn to soybean acreage, December corn futures climbed 8 cents on Friday while November soybean futures fell nearly 13 cents.

CancelPost Comment
MORE FROM AGRICULTURE.COM STAFF more +

Farm and ranch risk management resources By: 07/07/2010 @ 9:10am Government resources USDA Risk Management Agency Download free insurance program and…

Major types of crop insurance policies By: 07/07/2010 @ 9:10am Crop insurance for major field crops comes in two types: yield-based coverage that pays an…

Marketing 101 - Are options the right tool… By: 07/07/2010 @ 9:10am "If you are looking for a low risk way to protect yourself against prices moving either higher or…

MEDIA CENTERmore +
This container should display a .swf file. If not, you may need to upgrade your Flash player.
Weather Trumps Demand