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Corn Prices Will Follow Summer Weather, Says Analyst
This year's corn planting has been a struggle for many, as wet conditions and cool temperatures have either delayed planting or growth. Stand count could be an issue, and this may have been relayed in this week's Crop Progress report released by the USDA on Tuesday, May 30.
Perhaps what stood out on the report was the corn crop condition numbers, even more so than the planting progress numbers (at 91% for the top 18 producing states versus a 5-year average of 93%). Corn rated poor to very poor: 15% in Illinois, 17% in Indiana, 9% in Wisconsin and 12% in Ohio. Yes, it's early in the season. Yet, with a start like this, one can't help but wonder if trend-line yield expectations of 171 bushels are even possible.
If the last decade has taught us anything, it’s that the resilience of farmers, the technologies involved with growing a crop, and cooperative weather all suggest that yield potential is on the rise, and a large and dependable crop will be at hand. Still, Mother Nature does hold the final say. With a prevent plant date for some northern states of June 1, the combination of less-than-ideal spring conditions and the reality that some acres of corn will be switched to soybeans (or not planted at all) could set the stage for a smaller crop.
As summer weather goes, so will prices. If conditions improve, expect little rally potential in corn. At the same time, be prepared for downside potential, as projected carryout will still be viewed as adequate, despite lower acreage. Last year's low in December corn was 3.15. A drop from current levels to the 3.25 area shouldn't be a shock to anyone this year. However, if weather becomes more of a factor, look for the possibility of corn prices rallying faster and further than most expect.
A quick view of the cattle market over the last 3 months is certainly reflective of how a market can change from a very bearish oversupply concern to not enough inventory and a raging bull market. With record demand, corn futures could rapidly move higher, as managed money (which is significantly short the market) switches from short to long, and traders factor in weather issues. Buy stops will likely get triggered, and those that are holding corn in storage could become reluctant sellers, looking for higher value.
For you, as a corn producer, the key is a balanced approach to handle this. Reward rallies and buy calls to protect sales. Our suggestion is to purchase out-of-the-money call options now. If summer weather becomes an issue and prices rally, be disciplined and make sales at designated points. The call options will retain ownership.
If you have questions or comments contact Top Farmer at 1-800-TOPFARM, 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.