Selling corn should be top of mind for farmers, analyst says
As the corn market continues its spring rally, farmers are urged to take advantage of it by selling some crop. Meanwhile, with a build-up in demand, an even higher corn market is possible long-term, one analyst said on Friday.
As of this week, 2006 U.S. corn export sales are 5.0 million metric tons ahead of a year ago.
Jerry Gulke, Strategic Marketing Services Inc., told Agriculture Online the corn market looks very bullish short-term and if things go right, a $4.00 corn market year is possible.
In the meantime, Gulke urges farmers to take a good look at selling some cash crop now and locking in some futures contracts.
For cash contract sales on old-crop, Gulke urges farmers to be 100% sold at this time and 35% sold on the 2006 crop.
Gulke said if the July futures price isn't attractive enough, buy a 'put' for the bushels you plan to store and risk $0.05. "That strategy has worked all along," Gulke said. "If you need the cash, ask yourself when do you really need to empty that bin?"
If farmers have the storage and don't have to worry about quality, Gulke suggested another option. "I would sell it (2006 corn) for October delivery and pick up an extra $0.20 or $0.30. It's possible a lot of corn could come on the market during harvest and that an atrocious basis is possible this fall."
For the CBOT December 2006 corn futures contract, Gulke sees the contract reaching between $2.80 to $2.85 per bushel.
Though the market doesn't indicate a carry, forward pricing into 2007 and 2008 is also a good idea right now, Gulke said.
"I think you sell at least 10% of the 2007 crop just to get it out of your system," Gulke said. "Sometimes the best way to get rid of a stomach ache is to take an Alka Seltzer or sell a semi-load. I advise clients to sell 10% of the 2007 crop for delivery in 2008 out of that grain bin that you know you will have to move in March or April of 2008."
Long-term, demand could drive the corn market to price peaks it hasn't seen for a while.
"This rally and all of this corn market activity is happening without China being in the mix," Gulke said. "They (China) are already taking bulk containers of GMO corn to see how it sits. You don't send a big cargo of corn into China until you know the guy at the other end is going to accept it."
Gulke added, "If China were to announce a purchase of 1.0 million metric tons of corn, Katie bar the door, the market would be saying, 'Wow, we didn't expect this.' "
Based on demand, $3.00 corn could look cheap in a few years, Gulke said.
Gulke said the time for switching acres from soybeans to corn has come and gone.
"At this point, I think what we've got is what we've got. From here on out it's going to be soybeans that are planted."
For soybeans, Gulke still sees a volatile market, but wants to wait until the August weather has made its presence known before making a price call.
"I wouldn't want November beans to close below $6.00 again and July $5.95, because farmers in Brazil will start selling and that will weigh on the July contract," Gulke said.