You are here
Sell This Corn Rally, or Wait, Analyst Says
The corn market came alive a little over a week ago, with prices now over 50¢ higher in eight trading days.
That has erased the past six months of trading with losses, and prices are now in the higher end of the previous few years. What a difference a week makes! The market is rallying after finally waking up to the late planting scenario that has developed most of this spring.
It’s probably time to sell some corn, as the market chatter seems to finally understand the situation corn is in with delayed planting.
While our estimate of 4 to 6 million acres lost to prevented planting (PP) (give or take a million or two) and some yield loss has been sitting out there for a few weeks now (which is why we went long corn), finally we are hearing estimates from the CBOT of these numbers and higher. Yesterday, we heard an estimate of 10% lost corn acres nationally to PP (9 million acres) which seems high, and 30 bushels per acre lost due to late planting.
These estimates seem ridiculously high, so perhaps it’s now priced in the market? Undoubtedly, we will lose corn acres and yield, but the panic now in the market is exactly what typically is wise to sell.
Every market advisory and farmer in the country has their sights set on selling corn from $4.00 to $4.40, basis Dec. futures, as that has been the high range in the past three-plus years. So of course, if everyone is going to do it, it probably is going to be wrong.
What market participants are probably blind to is the chance of the market rallying beyond $4.40 or $4.50, corn futures. It has happened before, and under extreme situations it can happen again. But in order to get there, we have to slug through a tremendous amount of selling from $4.00 to $4.50 Dec futures. My point here is that if we hit all those price objectives from $4.00 to $4.50, we’ll probably go a whole lot higher.
Basically that leaves one with two choices for sales now (a 50¢ rally does need to be rewarded with some sales). One’s first choice is to sell a bunch now, and then watch and see if the market can clear all the other selling coming from $4.10 to $4.50 futures. If it does clear $4.50, hold off a bit to see how high the market can go. Can we rally above $5? Secondly, one could scale up sell along with everyone else between $4.10 and $4.50.
Selling some grain now does not say we believe the market can’t go higher this year, but the pace of gain cannot be sustained much longer, either. We are due for a 20¢ or more setback, and we’d rather price some grain now than have to wait another three months or more if we can’t climb back very quickly. Also, the whole world seems to want to sell corn between $4.10 and $4.45 this year, and if we can run to $4.45, there is probably a 50% chance it will go much higher (over $5). Because the market is unlikely to let everyone sell at a good price and then go down. If it has the bullish fundamentals to rally to $4.45, it will rally much higher.
Weather is still not good for planting, with heavy rains today in Texas, Oklahoma, Kansas, Missouri, Illinois, and Iowa and spreading east and north. The next seven days show above-normal rainfall in the Corn Belt, with the heaviest accumulations in South Dakota, Nebraska, Kansas, Iowa, Missouri, and Illinois. It dries out a bit in the eight- to 14-day to near-normal precip, with the wettest in Texas, Oklahoma, and Kansas. (Will winter wheat start getting disease?)
Temps are below normal in the northwest half of the Corn Belt, and above normal in the southeast. Temps cool a bit in the eight- to 14-day forecast seasonable to normal to below normal.
Planting progress is still pathetic, with corn 49% planted (31% behind normal), and 19% emerged (30% behind normal).
Soybeans are 19% planted (28% behind normal) and 5% emerged (12% behind).
Sorghum is 26% planted (12% behind); sugar beets are 90% planted (1% ahead of normal).
HRS wheat is 70% planted (10% behind), with a good week with 25% planted last week.
Barley is 76% planted (6% behind); it also had a good week with 18% planted.
In some cases, producers may have given up on planting HRS wheat and instead switched the acreage to soybeans or another late-season crop as it’s getting late to plant HRS wheat (especially in South Dakota).
Oats planting is 77% complete (13% behind), and sunflowers 3% planted (9% behind).
So, essentially everything is still quite late, with corn and soybeans lagging the most while HRS wheat and barley actually had a good week of planting progress.
One thing seems constant: Winter wheat yield prospects continue to improve in this wet/cold spring as wheat enjoys cool/wet weather to a point. But now that 95% of the wheat is headed in HRW wheat country, continued rainfall there can cause devastating diseases late in the year.
Right now, the Pro Ag yield model continues to rise, as winter wheat ratings rose 2% to 66% G/E. Pro Ag projects a 52.5 bushel-per-acre yield this week, up 0.32 bushels and well above USDA’s 50.3 May estimate. Unless disease takes down the winter wheat crop, we may challenge the 2016 record yield of 55.3 bushels per acre.
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.
This material has been prepared by a sales or trading employee or agent of Progressive Ag Marketing, Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Progressive Ag Marketing's Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.
DISTRIBUTION IN SOME JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW. PERSONS IN POSSESSION OF THIS COMMUNICATION INDIRECTLY SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. TO THE EXTENT THAT YOU HAVE RECEIVED THIS COMMUNICATION INDIRECTLY AND SOLICITATIONS ARE PROHIBITED IN YOUR JURISDICTION WITHOUT REGISTRATION, THE MARKET COMMENTARY IN THIS COMMUNICATION SHOULD NOT BE CONSIDERED A SOLICITATION.
The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Progressive Ag Marketing believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that advice we give will result in profitable trades.