Corn Is On Schedule, But It Might Not Feel That Way To Farmers
According to the USDA weekly Crop Progress report released each Monday, this year’s corn crop is on schedule. The market believes so, with prices continuing to trend in a sideways price range, as it has since late fall.
Yet, some farmers may disagree, especially those with saturated soils and little hope of planting soon, and those experiencing below-normal temperatures. They may argue that this is not last year (a record yield), and it is likely that maximum yield potential is on the decline.
Monday’s report stated that 84% of the top 18 corn-producing states have their crop planted. The five-year average is 85%. While the crop is on schedule, it is also experiencing adverse weather. One may ask: is this akin to the analogy of sticking one foot in a bucket of cold water and one foot in a bucket of hot water? On average, you should be fine. Yet, you know something is not quite right.
Parts of the Midwest have experienced record rainfall this spring. The ability for producers to plant so fast is evident this year.
Minnesota planted 50% of its crop in a week. This is a testament to the belief that rain delays really do not matter. Farmers will get the crop in, and there is little argument on this account. Better equipment and technology help farmers to solidify this thought process.
Yet, in our conversation with producers, there just is not a feeling of high confidence. One may build the argument that this year’s crop could be challenged to repeat yields of recent years, due to conditions that are not ideal (wet ground, replanting, and cool temperatures). Add to that the idea that some acres could switch to soybeans and some may not be planted at all, and we could see tightening inventory in the year ahead.
From a marketing perspective, the managed money invested in the corn market remains heavily short. There does not seem to be reason for funds to change positions if they trade numbers (planting progress) or technical indicators (charts).
Yet, if and when they do, a market rally is likely. Research indicates that, in years following record yields, there is a high probability of a price rally. Over 50% of the time, the rally comes in June, July, or August. Producers should recognize that in recent years, rallies have occurred, and then run out of gas near $4.50 December. With a large supply of corn left over from last year, a rally above $4.50 is not likely, however, not impossible.
If this year’s crop remains as challenged as it has this spring, a much larger price rally could be in store. Yet, we have been down this road before. Just when it seems it is not likely a big crop is possible, weather improves, farmers adjust, and they do what they do best, maximize their crop potential.
Not knowing what will happen, we encourage a balanced approach. Plan to begin selling between $4.00 and $4.50. Purchase call options to cover these positions. This is just one way to hedge your risk and take advantage of opportunities. As always, be sure to visit with your advisor so that you understand the implications of your strategy.
If you have questions or comments contact Top Farmer at 1-800-TOPFARM, ext. 129.
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