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Weekly Corn Review

Balancing risk and reward in corn

Published on: Apr 14, 2014

Grain markets can drive you crazy if you live with them long enough. But sometimes the market does what it's supposed to, at least for a little while. Don't expect that serendipity to last because now comes the hard part. Corn could head in either direction as the growing season takes hold. The key to managing this uncertainty is to know what your risks and rewards might be.

I can't predict which way corn will wind up. But my forecasting model spells out what might happen to prices.

Following these guideposts can point out some opportunities, at the least. That's why I make sure to track seasonal trends. The one I've been talking about lately appears to be right on schedule: the tendency for December to make at least an interim top in the first week of April. Despite a bullish interpretation by USDA of its March grain stocks data, the market spiked higher and couldn't hold. The market didn't really break down, and likely won't yet. There's still too much uncertainty about what lies ahead. But taking advantage of these trends can take some of the pain out of marketing.

Balancing risk and reward in corn
Balancing risk and reward in corn

My supply and demand table this week outlines two paths. One assumes USDA's Prospective Plantings estimate holds, with average yields. This isn't really a bullish scenario – if weather hurts production again, prices are obviously going higher, probably much higher. But a 13.5 billion bushel crop would only increase carryout a little. Stocks wouldn't be terribly tight, but the juice added to the price curve from fund buying over the winter could stimulate rallies to the $5.45 level or better, where there's a lot of potential chart resistance.

This outlook assumes old crop stocks tighten more, likely due to better feed and ethanol usage. I haven't plugged USDA's big increase in exports from April 9 into my forecast yet, though recent sales and shipments are headed in the right direction. So, beginning stocks for 2014 could be smaller yet.

Every little bit helps as long as production doesn't go up too much. And that's why I recommended being 35% sold by this early April rally. There's plenty of evidence to suggest USDA was too low on its initial acreage forecast. And, if weather is favorable, farmers will keep planting corn. If 90% of the crop is planted by the third week of May, seedings could approach 93 million acres. Add in a yield bump of just 5%, and production goes up to 14.4 billion bushels, enough to swamp even robust demand. Average cash prices would run around $3.50 a bushel.

To read the remainder of the report, download the .pdf document 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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Story Tags: usda, planting corn

Comments:
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  1. Anonymous says:

    Wait until after the market overreacts to the June 28th USDA report, then buy September corn.

  2. Anonymous says:

    We need to spend less money on production and more money on storage bins.

  3. Anonymous says:

    Yes, there was a week of bad data. Unfortunately, it's a fixed chart and I can't correct it. --Bryce

  4. Anonymous says:

    Bryce, On the world corn prices charts in the Weekly Corn Review, is the Ukrainian Corn a bad data point?

  5. Anonymous says:

    you farmers should have farmed in the in between war years. Hilary Clinton made 2.4 million in four days shorting the fed cattle market, with 50 cattle contracts in the dairy bonanza days of 1980. Guess who lost!!! the family farmer cattle feeders,in there nievetie. thene the tit for tat trading war of pre NAFTA CAFTA RAFTA AND every other free trade agreement of slick Willy C . thanks to Newt Ginrich and Monica Lewinski fame. So you thhin usda is bad at reporting now! wait until Martha Stewert get a hold of you, or do I have to draw you a picture!!!!!

  6. Anonymous says:

    People don't always realize it, but we started rationing demand last June/July. We imported wheat. We imported milo. We imported corn. We closed 32 ethanol plants entirely. We slowed down many of the other plants. We fed a higher percentage of DDG's in feed rations. There is more corn!

  7. Anonymous says:

    Brock has either shorted the market or is an idiot.

  8. Anonymous says:

    Brock was right. It looks like it is over for corn. Harvest could be as low as $4.50 in the country. Brokers around here are taking as high as $2.50 basis.

  9. Anonymous says:

    Corn and soybeans are going to crash due to South American production. williamwandrews@bellsouth.net

  10. Anonymous says:

    An organized Farmers Strike would work just fine...

  11. Anonymous says:

    It all boils down to the USDA trying to keep food prices cheap especially in an election year. I am a grain farmer and a cattle producer and the mysterious pink slime case that hit the market right when beef was at it's high was not a coincidence. We had to sell about 300 feeder calves that week and it costs us over $100/hd from what we got just 3 weeks before. I don't know who is going to take the chance to make a dollar farming if they keep take tampering with the markets.

  12. Anonymous says:

    I agree with the hilfarmer also,until the usda can control the weather they should keep there thought to themselves. The farmer himself does not know for sure what he is going do to next year. A lot of my friends has been hurt from these false reports. farmer

  13. Anonymous says:

    Hillfarmer is right! The USDA has no business giving wrong acreage reports and wrong yield projections. Those "mistakes" cause farmers to sell too low and magnify the risk they encounter with drought. Once again, the market traded early on this erroneous information, farmers were stuck with the market prices throughout the year and now those prices have increased the losses that farmers will experience. I would argue that the USDA did as much damage as the drought; maybe more, since it scared farmers into forward contracting bushels and taking on production risk they might not normally have taken on. Now, having damaged the farmers, USDA rides in on a white horse and gives farmers below-interest loans so they can double down and pay off their contracts with loaned cash. USDA should stick to administering school lunches and stay out of the ag marketing projection business. What is their motivation for ruining markets for producers?

  14. Anonymous says:

    Sorry to take so long responding. The selling ranges are what the model says is the range form one to two standard deviations above the average -- which covers 95% of the expected price range given all the data we currently know. This range is essentially the "top one-third" of the price range. This is a moving target, and changes from week to week along with the data. I plan to provide a better explanation on a footnote to the tables -- it's on the to do list. -- Bryce

  15. Anonymous says:

    How should "This Week's Selling Range" be interpreted on the balance sheets?

  16. deereman 47970 says:

    I agree corn prices have been bouncing all over the place and making it hard for us farmers to know when to cash in....

  17. Hillfarmer says:

    Why does the government give wrong acreage reports in the first place?  With the acres being certified with FSA and crop insurance acreage reports and computer technology the government knows how many acres are planted by the middle of July.  There is no excuse for changes in planted acres in the following months.