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The Next 60 Days For Corn, Soybeans
As the end of February approaches and insurance levels are basically known, the market will now look ahead and try to determine whether acreage will shift substantially between corn and soybeans. The next 60 days will likely provide the time window and catalyst for farmer decision-making. We're not convinced that insurance levels, as they are discovered the rest of February, are a major factor this year that will contribute to an acreage decision.
After visiting with numerous producers throughout the Midwest over the last two weeks, it still appears to us that farmers were leaning toward planting more soybeans than corn. If corn acres are reduced 5%, this could reduce corn production by nearly 4 million acres, or using a simple 150 bushel yield, about 600 million bushels. To date, corn carryout at or near 1.8 billion is enough to not concern the market at this time. Yet, as spring approaches and 6 months of usage is behind the market and the next six months are complete unknowns, any thoughts of acreage reduction could loom larger in the days ahead. If either corn or soybeans over the next two months provide more incentive for producers to plant, price outlook for the year ahead could change significantly.
At a minimum, soybean acres could increase 2 to 3 million, which would suggest carryout could rise toward 500 million. This is negative for beans in the long run and would suggest November beans (should there be an average to above-average crop) could see prices drop to the $8.50 price level or lower. A reduction in corn acres would provide less of a margin for error producing this year's crop. Assuming a normal corn yield, this could reduce the yield to between 1.2 and 1.5 billion bushels. This is still considered a comfortable level, though certainly not overwhelming.
Beyond the decision of which crop to plant or not plant, the most important variable beyond the next two months will be weather. Most analysts are penciling a new crop corn yield of 165 bushels or higher. From a historical perspective, this high yield is doable but aggressive. Yes, fringe acres could be lost due to planting other crops, and this in itself could edge yield higher. When estimating total production, corn could be the dark horse commodity this year. An acreage reduction and yield of less than 160 bushels may not be enough to meet demand. The market may have to ration supplies.
In the end, the key is to have a balanced approach. Weather will be the biggest factor after acreage to determine price direction. Good weather, and corn could drop to below $3.50; beans to under $8.50 by harvest. You need to be prepared for any scenario. A combination of forward contracting and using put options to establish a price floor on all of your expected production is recommended for both crops. In addition, look to cover forward sales through the use of call options. Should weather ensue and prices move dramatically higher, you are now, in effect, 100% long in the market and can benefit from a price rally.
If you have questions or comments, or would like help implementing strategy for the year ahead or desire materials that you can read to learn more about marketing, please contact Bryan Doherty at 1-800-TOP-FARM ext. 129.
These strategies may not be for everyone. In any strategy, consider commission costs on transactions, and make sure you understand the ramifications whenever you are in any market position.
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