Upside Seen for the 2018 Corn Market
The recent pullback of near 15¢ in corn futures, 30¢ in soybeans, and 20¢ in wheat could be viewed as the start of two different paths.
On the one hand, the potential that prices may have peaked and are on their way down would be more in line with the somewhat bearish mind-set the grain markets have exhibited over the last several years. This has been due to large world inventories, as excellent crops with little or no negative weather events have impacted yield. Yet, there is a different feel to the markets this year. Supply, while burdensome in wheat, is becoming less burdensome in corn and soybeans, which suggests increasing price volatility with an upward price bias.
By some measurements, commodities as a whole have been on the rebound since bottoming in January 2016. Price setbacks in most markets have proven to be opportunities for buyers. Managed (speculative) money in the corn market has exceeded both 2015 and 2016 for the number of contracts traded.
From a historical perspective, the corn and soybean markets have projected carryouts that are large, if not burdensome. Yet, after four years of low prices, these carryout numbers, when divided by usage, have a different look and feel. What we see is that multiple years of big crops and low prices have produced steadily increasing demand. This may be particularly true in corn; in 2018 it is expected that the world will consume more corn than it will produce. Rallies over the last two years have occurred, yet were short-lived. Farmers are poised to sell aggressively this year.
While not predicting a drought or significant change in price, you want to be ready. End users could be wise to buy grain and feed while it’s cheap. What is cheap? We define cheap as near or below the cost of production. From a producer perspective, be prepared to sell when prices rally, and have these positions covered with call options. With call options in place, you will not be stressed that you sold too much too soon, should a price rally occur. Buy puts on grain you do not intend to forward sell. The lesson learned in recent years is that when a rally ends, it can end quickly. Preplan for summer weather to dictate price movement. Prepare yourself for any price direction.
If you have questions or comments, contact Top Farmer at 1-800-TOP-FARM, ext 129.
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