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The Prevented-Plant Scenario for the Corn Market
We saw a major turnaround in corn prices on Monday, May 13, when corn futures dropped 8¢, turned around, and finished 5¢ higher.
The daily trading range was larger than the previous day. That, with a higher close formed a technical signal called a bullish key reversal. Reversals can signal a top or bottom in the market. With continued wet weather in the forecast and corn planting slowed, a chart reversal could be a signal to traders that future corn supply may shrink, and now is the time to buy.
As of Sunday, May 12, 30% of the corn crop was planted, according to the USDA Crop Ratings and Progress report. Planting will move along and likely pick up, yet the rain forecast through May for much of the Midwest could hinder progress.
Some states have a prevented plant date of May 25. If saturated soils do not dry out, farmers may take a prevented-plant insurance payout and forgo planting those acres. That presents a bullish factor for corn.
There could be as many as 3 to 5 million acres not planted. At 4 million not planted, production could be reduced by nearly 700 million bushels. A bulging carryout projection of 2.5 million could quickly drop down to 1.8 billion. With 70% of the corn crop planted late, yield could be off 3 bushels an acre. This could result in a potential reduction of another 270 million.
With unplanted acres and decreased yield, we could project a total carryout reduction of close to 1 billion bushels. This “what if” analysis is a possibility.
At the same time, we have to consider the fact that farmers may decide to plant beyond the prevented-plant date. We believe this will depend on price. If corn futures continue to rally upward, farmers may plant more corn acres.
The insurance payout may decline beyond the prevented-plant date, which varies by region. The payout reduction may be small (declining on a daily basis), and may not matter much if farmers see a higher market price for harvested bushels.
Current prices and anticipated market action can trigger activities that move prices further along, or in another direction.
A sharp rally into the $4.25-per-bushel area, or higher, on December corn could actually pull acreage from beans, considering bean prices are low. This could mean an increase in acres and carryout. On the other hand, if farmers prevent plant millions of acres of corn, carryout could be reduced 40%, and prices gain a firm footing for potential weather market rallies throughout the rest of summer.
There are a lot of moving parts in a very short window of time that will affect the corn production and price. Be prepared for most anything.
If you have any questions or comments, contact Top Farmer at 1-800-TOP-FARM, 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.
Carol Tillmann Operations Support | Stewart-Peterson Office: 800.334.9779 | Fax: 262.334.6225 email@example.com
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