After USDA projected this year will bring the highest corn ending stocks in 12 years, farmers can hardly be blamed for a La Nina scare that brings crop prices back into profitable ranges.
But analysts on U.S. Farm Report this weekend urged growers to plan on trendline yields for now, just to be safe.
“You have to factor in the perfect (or) relatively perfect yields, which are very high right now,” said Brian Roach of Roach Ag.
Why? Because USDA is doing the same and historically, the trendline yields for key commodity crops—corn, soybeans, wheat—has been rising over time.
“It’s a mathematical number, and USDA’s going to use a trendline to start their number and make adjustment as they go from there,” said Bryan Doherty of Stewart Peterson. “If things continue along the path, you almost have to figure we’re near those prices (of $3.45 for corn, $8.50 for soybeans and $4.20 for wheat, based on USDA projections). So there’s probably not a lot of near-term downside for right now. All the uncertainty lies with the crop.”
That’s where farmers might see some marketing opportunities this year, particularly in the spring and summer, when crop prices are typically higher than at harvest.
One major factor to watch—as always—is weather.
“The weather patterns in the world are unwinding from this El Nino, and we know that historically the odds of having below trendline yield—or at least no better than trend—are about 60%,” said Roach. “…I think it’s a year in transition in weather that may keep the (speculators) from getting these big short positions on before the crop is grown, but I would expect that to happen again.”
For the moment, though, the end user has the upper hand in the market, with crop insurance prices estimated at $3.86 for corn and $8.85 for soybeans.
“The markets have a tendency to move on three things: perception, momentum and attitude,” said Doherty. “The perception right now is that there’s ample supply. There’s no rush for end users to buy (given that) the attitude is somewhat bearish. Sideways-to-lower is the momentum.”
But markets can defy prediction. “All that can change really quickly, and we saw that last year when corn prices rallied 90 cents in month,” said Doherty. In 2012,” We saw (a rally of more than $3) in less than two months.”
What should producers do? Roach recommends being conservative in your sales for now. “We never made or lost a crop at this time of year, and so I think producers should—if you don’t have cash flow covered for those March bills—keep the sales small just to get enough cash to cover that, but try to remain as long as possible. If you can get through this period here, producers with a lot of grain in the bin … will have to (wait until) mid-year to get what I think might be the best price, particularly if this crop goes in the ground fast.”