Better Days Ahead for Corn
Although the corn market has been trading in a sideways pattern for months, the macro picture for corn prices continues to gradually move toward a price rally. When indexed to history, we see an 83% chance that December futures will trade above $4.25 during the calendar year 2019, according to our research. As prices languish for the sixth year in a sideways-to-lower pattern, demand continues to grow. Based on USDA world crop data for 2016/2017 crop and 2017/2018 crop, the world will consume more corn than it produces. In the year ahead, the need for another big corn crop is paramount.
In 2017, the U.S. produced a record yield of 176.6 bushels an acre, a reflection of increased technology through genetics, better tillage practices, equipment, and excellent farmers. The final yield estimate for 2018 remains uncertain, as the USDA report due for release on January 11 has been delayed due to a partial government shutdown. The December 11 USDA report published a yield of 178.9 bushels an acre. This number could be revised down, in light of a difficult harvest season for many, lower test weights in parts of the country, and a smaller yield for many compared with last year. U.S. carryout could be under 1.7 billion bushels, a large reduction from last year’s 2.5 billion forecast during fall 2017. Bottom line: There is no room for error in producing the 2019 corn crop.
We are outlining the case for higher prices, yet prices could and likely will drop if another good crop is produced. Farmers are outstanding producers. With genetics and timely weather, yields are consistently improving.
Producers should view rallies and aggressively sell. Consider targeting December futures between $4.15 and $4.45. Cover these sales with call options, as prices could skyrocket if less-than-ideal weather affects the growing season. Rehearse what the future may have in store for the year ahead and prepare yourself, knowing how to use the right marketing tool at the right time.
If you have questions or comments, contact Top Farmer at 800-334-9779, ext 129.
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.
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