Weekly Corn Review
Lower acreage might stabilize corn market.
Bryce Knorr
Published: May 17, 2013
Corn remains a tale of two markets, old crop and new. That should change a bit next month, when questions about acreage and yield take center stage for 2013 crops.
Until then, tight old crop stocks will drive the debate, at least for July futures. Ethanol margins remain strong, helping support domestic demand, which should also get a lift from more cattle in feedlots. Even exports firmed up recently, as grain began flowing down the river in a timely fashion.
Look for USDA's June grain stocks report to increase the market's case of the jitters, because these inventories have caused a lot of volatility in the last three years. Growing season weather will also be in the spotlight, with this week's heat a reminder of how fast the outlook can turn. Pollination will be a little later than usual this summer due to the planting delays, leaving yet another wild card for traders to mull: acreage.

Lower acreage might stabilize corn market.
While there's no statistical correlation between mid-May planting progress and final yields, there is a connection with acreage. The slow start to the year could result in final planted acreage that's 2% to 4% or more below USDA's March intentions. Even at normal yields that's enough to chop up to 600 million bushels off total production. Ending stocks still wouldn't be extremely tight, but the decline would intensify any reaction to weather, as traders watch weekly crop ratings closely.
I've included the lower acreage scenario in this week's price models. They suggest a potential selling range of $5.75 to $6.50 for December futures, well above the normal yield assumption, which is $5 to $5.75.
With December futures beginning to trade in the bottom half of that range, there's nothing to do now but wait to see if the April low at $5.17 holds. The seasonal trend for December futures certainly isn't bullish in the normal year pattern after mid-May, with weakness into the end of the month and early June. That would be the time to make lemonade out of lemons, by buying a few out of the money new crop calls if additional upside protection is needed to supplement the Revenue Protection crop insurance guarantee. Short-dated September new crop calls or September calls for under a dime would be enough.
Those who really need more protection should consider selling the July 2014 rather than the December, as the market's built some carry in already as a cushion. We previously recommended pricing 30% of production at an average price of $5.96, using Revenue Protection as downside coverage on the rest. Selling July 2014 calls and buying December puts would be another way to go. Of course, anything with futures assumes the ability to suffer margin calls, both in temperament and cash flow.
For more on this, download my weekly Corn Report using the link below.
Senior Editor Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Adviser. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.
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