Content ID

258064

Keep Your Grain Marketing Powder Dry

As the end of April approaches, the corn market will begin to focus more attention on this year’s crop potential. With a very wet and cool forecast for much of the Midwest April 26 through May 2, there is little doubt planting will fall behind schedule. Is it a major concern? Only time will tell. We would first say probably not, as planting delays, from a historical perspective, have been less important in recent years due to the increased capability to aggressively plant crop. One would also have to argue that rain delays in recent history have been followed by near-ideal growing conditions, negating any potential negative impact that historically affect late-planted crops.
 
What if ideal growing conditions do not exist? With most planted acres bunched in a small time frame, it puts the crop in a more critical window in which a stretch of hot, dry weather could impact growth and yield potential. In other words, it is akin to putting all of your eggs in one basket. Perhaps more importantly is the idea that, with December corn futures priced under $4.00 and the entire planting, growing, and maturing season ahead, a less-than-ideal spring could be setting the stage for a price rally. Price risk could quickly shift to the end user. 2016 was a spectacular crop year for corn production and most all agriculture products produced in the Midwest; it was a near-perfect weather scenario. 2017 may already be off to a less-than-ideal start, and suggests being patient before making too many sales.
 
A second reason to be patient in selling new-crop corn is that carryout could be on the decline this year. From roughly 2.4 billion bushels in the 2016/2017 marketing year, record demand, a 4-million drop in planted acres and reduced yield from last year’s record (174 to 170) suggests carryout closer to 1.6 billion. Reduce acres further, or drop yield to 165, and carryout could narrow to near 1.2 billion. Demand looks solid. Usually, demand is curbed only by higher prices.
 
So far, we have covered expectations of less-than-ideal weather, lower acreage, and the possibility of lower corn yield. However, there are other factors. The U.S. dollar is in a downtrend since peaking in December. In addition, managed money has a very strong short position. If funds decide to move out of short positions or go long, prices could benefit, as this would likely put upward pressure on futures contracts.
 
The flip side of bullish potential for corn prices is the fact that you are excellent at what you do, and that is growing corn. Yet, it will take cooperation from Mother Nature. What we are suggesting is that volatility could ramp up in the months ahead, and the key from a marketing perspective is to have a balanced approach. Consider purchasing call options to forward sell or hedge against. If prices reach between 4.25 and 4.50 December futures, consider selling half of your crop. On the other half, purchase put options to establish a price floor. If prices skyrocket, you have half of your crop unsold that can benefit from a price rally. The half that is sold is covered with reownership through calls. You are 100% long the market. Should prices drop, you have half of your crop sold and half protected with puts or 100% of your downside price risk protected.
 
If you have questions, comments, or would like a feed-buying strategy for your operation, contact Top Farmer at 1-800-TOPFARM, ext. 129.

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