With so many fields drowned by recent rains, there is plenty of uncertainty over what the final acreage numbers will be. Jerry Gulke explains how farmers can protect themselves.
It's no secret that the USDA has forecast an exceptionally large corn crop—91.7 million planted acres slated to produce a record 13.935 billion bushels—and a record soybean crop, with 81.5 million planted acres and 3.635 billion bushels. But, after last week's drenching rains that continued into this week, fields across the northern Corn Belt are now dotted with ponds, leaving the market to wonder whether those record numbers will be realized.
"The general perception is that, first of all we've got a big crop coming yield-wise, and I guess the unknown yet is how many acres did we end up planting," says Jerry Gulke, president of The Gulke Group.
Gulke says many traders are expecting USDA to increase both corn and soybean acres in Monday's Acreage report. "That's what the market's looking for, so we look at what numbers do come out, and how does that compare to expectations, and that'll tell us if the market goes higher or lower," he says.
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However, both Monsanto Co. and DuPont Co. reported this week that their second-quarter profits were down due to a drop on corn seed sales. This, Gulke says, has caused some interesting trading this week, as some traders question the size of the planted acreage.
"We planted a lot of acres, and if you fly around northern Iowa and southern Minnesota, it kind of looks like it did last year—a lot of potholes, a lot of ground under water and saturated," he says. "The only difference this year is that last year, it didn't get planted. It was prevent plant. This year, we planted it all." That has caused a lot of variance in acreage estimates, he says.
Gulke says he's been seeing a lot of negativism in the market lately.
"A lot of farmers have been selling like crazy out of the cash market, thinking we're going to go to $2 because they've got a big crop, and others that don't have a crop don't think that," he says.
That kind of "backyard marketing"—making assumptions based on your own crop—can be dangerous, Gulke says. But, there are ways that you can protect yourself ahead of Monday's USDA reports.
"You know, selling $4.50 corn with a wide basis doesn't excite me at all. And if I had a lot of corn sold, I would be buying a call against it. They're not cheap, but you can still do that in the first few hours of the morning Monday morning," he says.
Short-dated options are another good way to manage risk.
"I think you have to look at your own situation, and if you're happy with it, do nothing and say well, this is an interesting experience," he says. "But if you're leaning pretty heavily on the short side of something in the futures, then that's what these options are made for."
Have a question for Jerry? Contact him at 815-721-4705 or email@example.com.