USDA’s Planted Acreage and Quarterly Grain Stocks reports released at the end of June proved to be uneventful to corn and soybean futures markets. However, it was the weather forecast and then the reality of hot, dry conditions in much of the western Corn Belt that triggered short covering of the commodity funds.
While it would be easy to get bullish on corn and soybean futures prices, large U.S. ending stocks for corn, soybeans and even wheat will likely limit upside price movement as higher prices will ration a limited supply. What is your plan for marketing 2017 new crop bushels?
By early July, corn and soybean farmers got another chance to price new-crop corn and soybeans at prices above the crop insurance projected prices. Remember, the 2017 crop insurance prices are $3.96 per bushel for corn and $10.19 per bushel for soybeans, respectively. Thus, a farmer who purchased revenue protection crop insurance should have a high comfort level for preharvest marketing a portion of their insured corn bushels when December corn futures prices or November soybean prices exceed these levels.
Consider your farm’s cash flow needs and on-farm storage capacity. Do not let your ego take over and think you will be able to time new-crop sales at the highest price level. Try not to get caught up in the latest weather forecast or thinking you’ll make all your sales at the highest futures price. The speculative commodity funds will ultimately determine when and at what price level futures peak and begin to decline.
Making scale-in incremental sales
Below is a simple crop marketing plan created in early March and overlaid on the December 2017 Corn Futures Chart updated July 10. The expectation in March was that December 2017 corn futures would likely trade above $4 but could struggle at prices above $4.20 per bushel. That is because the life-of-contract price in mid-June 2016 closed at $4.22¾ per bushel. Remember, U.S. corn ending stocks were expected to exceed 2 billion bushels in both the 2016-17 and 2017-18 marketing years.
December 2017 corn futures
New-crop sales are made in spring or early summer when December futures traded at more than $4 per bushel. Scale-in incremental sales would occur every 5 cents, likely using forward-cash and hedge-to-arrive contracts in both the December and March contracts, depending on the farm’s likely on-farm storage capacity.
Expected production would use the farm’s actual production history (APH) yields, and no bushels will be stored commercially.
As the market traded more than $4 per bushel in early July, you simply continued to make sales. By July 10, the market was trading at more than $4.13 per bushel, or within 10 cents. This price will likely be the upside price objective and should trigger a farmer selling futures, purchasing put options and doing cash sales that could still be covered by call options contracts. Strong support in this contract remains at the $3.75-per-bushel level. While many farmers will become bullish on corn futures, don’t ignore that a nearly 2.2 billion bushels of ending stocks are at the end of August. This will be the largest U.S. ending stocks number since the 1987 crop. And farmers will own most of these ending stocks.
New-crop soybean marketing plan
The soybean marketing plan created in early January was overlaid on the November 2017 Soybean Futures Chart updated July 10. The expectation in early January was that South American weather could provide an opportunity to make some early 2017 soybean sales when futures traded at more than $10 per bushel. Scale-in incremental sales would occur every 10 cents, expecting that prices could struggle above the $10.43 price peak realized in late November.
Despite record Brazilian-planted soybean acres, U.S. farmers would increase their 2017 acres to record levels due to better expectations for the net return for planting soybeans vs. corn. In addition, the smallest U.S. winter wheat crop in more than 100 years was known by December. With just trendline soybean yields in 2017, U.S. soybean ending stocks would exceed 400 million bushels in both the 2016-17 and 2017-18 marketing years.
The assumption of South American weather threat proved correct. Throughout much of January and February, November soybean futures traded at more than $10 per bushel. Then with record South American soybean production confirmed, the November contract sold off by more than $1.30 per bushel.
The hot, dry weather forecasts for the first half of July triggered short covering by speculative commodity funds and some new speculative buying. The November contract retraced the entire $1.30-per-bushel move and threatened to trade back to levels not seen since last winter. Make those scale-in incremental sales above that $10.19-per-bushel projected price. Again, consider your farm’s cash flow needs and on-farm storage capacity.
Despite the weather concerns, you should expect large U.S. corn and soybean ending stocks to impact basis. Both corn and soybean basis will remain abnormally wide throughout the summer and well into harvest. Once the 2017 harvest wraps up, then basis should begin to narrow. Try to avoid commercial storage costs. For soybeans, consider a January hedge-to-arrive contract to allow a couple months to capture a better basis.
Johnson is an ISU Extension farm management specialist. Contact him at [email protected].