Will current grain sellers be heroes at harvest, analyst asks
In another flex of its bullish muscle, the market is running to new highs in corn, soybeans, and Minneapolis hard red spring (HRS) wheat this week.
This is very typical of April/May, especially when supplies are low and prices are high. We seem to rally to attract acres into production, and help farmers more intensively farm their ground with additional fertilizer, chemicals, and care.
Prices are back trying to attract additional production given the 120-million-bushel soybean projected carryout, and 1.35 billion bushels of corn. That’s a far cry from the 3+ billion corn carryout talked about last May, and the 1-billion-bushel soy carryout discussed a few years ago.
U.S. markets are also concerned that the March 31 acreage report didn’t include at least 4 million to 5 million acres that many expected to be planted – or at least, this survey didn’t show it. So the market is trying to attract sufficient acres in its view to guarantee an increase in production.
Corn has busted $6 old crop, and well over $5 new with soybeans running close to $15 old crop and $13 new. These are all prices we haven’t seen in six to seven years, so it’s all looking profitable in grain production ag today. Usually when that happens, it’s time to sell something – maybe even a lot – of grain.
Weather includes a week more of cold weather, with below-normal temps through most of the Corn Belt the coming week. Thereafter, though, temps warm to above normal in the southern half of the Corn Belt/U.S., while remaining below normal in the northern third. Precip is below normal the next week, but then turns to normal/above normal in the eight- to 14-day period.
Markets rallied to our target of $14.56 May soys (the old high) and continued to $14.72 overnight, so it’s time to take profits on calls bought on 40% of last year’s crop. Also, we hit our target of $12.97, basis Nov. soys, to price another 25% of 2021 crop (moving to 45% priced). We are really riding the fumes of bullish sentiment, as corn has now run to new highs in old and new crop. We have rallied so quickly that markets will not be able to sustain this run; the shortage perceived for 2021 is likely to be solved this year by the aggressive planting and intense production followed by demand-shattering steps.
We will likely want to push sales of corn another 10% on the way up if we hit $5.35 December corn.
At these stratospheric price levels with 1.35-billion-bushel corn carryout this year, we will want to price 100% of 2021 corn and soybeans (with puts) once this market tops.
Crop progress was out Monday afternoon, and there is nothing that suggests anything but the potential for an average or above average crop right now. Most droughts have ended (except North Dakota and Canadian provinces), with soil moisture steadily rising the past few months. Now, the U.S. has 69% of topsoil adequate/surplus (up 2% this week), which is almost ideal for planting. Subsoil is 65% adequate/surplus, up 1% this week and also almost ideal for the country for planting.
In spite of very cold conditions, planting progress is at or above normal levels in most crops, especially the cool-season crops. Sugar beets are 25% planted, 4% ahead of normal; oats are 50% planted (8% ahead); HRS wheat 19% planted (7% ahead), and barley 26% planted (8% ahead). Of the warm-season crops, corn is 8% planted (equal to normal), soybeans 3% planted (1% ahead), cotton 11% planted (2% ahead), and only sorghum is behind normal at 15% planted (4% behind normal).
Winter wheat conditions were steady at 53% G/E, but the yield model rose 0.085 bu/acre to 51.28 bu (vs. 50.56 trend), so we have an above-average winter wheat crop in spite of a terrible start last fall and bitterly cold weather this winter. There is simply no sign of a crop problem in virtually any crop at this early stage – although the cold weather the past few weeks has some producers concerned. But it is spring – it will warm up sometime.
The market is getting ahead of itself to solve a perceived problem of a shortage of grain; perhaps that means this is a great sales opportunity? Pro Ag has held 2.2 years of HRS wheat waiting for an opportunity like this rally to cash it in. We’ve already cashed in about two crop years of corn/soybeans ownership at levels not seen for at six years. So it’s been a great marketing year, making us heroes after being goats holding all that grain through the pandemic. We are getting the feeling that the people selling now (goats) will by harvest be heroes as well. That almost always happens, yet how do you call someone a marketing goat today who is selling at these profit levels?
Ray can be reached at firstname.lastname@example.org.
Ray is president of Progressive Ag Marketing, Inc., a top-ranked marketing firm in the country. See .progressiveag.com for rankings and link to data from Top Producer Magazine and Agweb.com.
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