TFI- Perspective May 29, 2019


This year’s unprecedented weather could mean a monumental mindset change for 2019 production expectations. We’re experiencing a late spring and continue to see forecasts of cool and wet conditions into June. Prices are driving higher on a lack of strong planting progress through spring, and now expectations that some corn acres (perhaps many) could go into prevent plant. End users have had the luxury of buying hand-to-mouth for a long time and now may need to buy aggressively, as supplies could become very tight. On May 11, July corn futures bottomed at $3.43 and recently posted a high of $3.99, a quick 56-cent rally.

Where from here? Simple math could say that 1 billion bushels of corn production is gone due to such poor planting conditions. Reduce corn plantings by 4 million acres, at an expected yield of 175 bushels per acre, and, consequently, 700 million bushels disappear. Add a yield drag of 3 bushels per acre due to late planting, and another 270 million bushels disappear. Assuming no change in demand, this takes carryout from an expected 2.5 billion down to near 1.5 billion for the year ahead, a drop of 40%. This could imply that old crop futures are beginning to ration supply, as they have rallied faster than new crop prices.

Now come the “what if” questions. What if planted acres are reduced by 8 million, or yield is dropped by 10 bushels, or both? It doesn’t take a vivid imagination to consider these scenarios, as they are totally possible. Even the most experienced farmers are telling us they have never witnessed a spring like this. To that end, be prepared.

End users should recognize that corn futures could make an explosive move upward and double in value. If you are aggressively forward sold or have entered into accumulator-type contracts in which bushels sold could double, buy call options. You could find you are quickly well behind the market on a much larger portion of your crop than you anticipated. Poor weather could reduce your yield, acreage, or both. Bottom-line, the double-up contracts could mean a lot more to you in a short production year. If prices spike higher, buy put options in case futures don’t hold the rally. Bushels you thought were sold (due to a double-up) may not be sold at all. Think of 2008 when corn futures rallied to $8 from near $5, and then dropped to under $3. Producers who thought they were doubled up on sales were not. The frustrating issue for farmers was that they would have sold more but dared not to, because they thought they had two times as many bushels sold.

No matter what the scenario, plan for every one of them and be ready with strategy. It could be markets flare up and do nothing, or it could be that history is made with record non-plant and prices skyrocket. Or, it could be that the weather turns favorable and ideal growing conditions occur (including a late fall), and prices fall back into the dump. Prior Planning Prevents Poor Performance.

If you have any questions or comments, contact Top Farmer at 1-800-TOP-FARM Ext 129. Ask for Bryan Doherty.

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.



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