December Corn vs Anhydrous -- Thinning the Revenue Gap

April 29, 2013 09:09 AM


December 2013 corn futures have found some strength today, moving 28 cents higher so far to its current $5.58/bu. Weather concerns continue to rule the Dec contract and despite a narrow window of progress in the central Corn Belt, the forecast calls for rain for the next 6-10 days and cooler than normal temperatures.

This afternoon's Crop Progress Report is expected to report the lowest percentage of corn planted on this date in 20 years at just 9%. That could inject some fresh strength into corn futures, and thin the revenue gap between the price of a ton of anhydrous ammonia and the expected return on an acre of corn.

Anhydrous ammonia is at $874.30/ton in this week's Inputs Monitor. Friday's close for Dec corn was at $5.30/bu. According to trendline-based calculations, corn sold at that price would add up to $808.00 per acre creating an anhydrous/corn revenue margin of $66.30 with anhydrous pricing higher than Dec corn. In other words, growers who sell at $5.30 would get less return per acre than the price of a ton of anhydrous.

Lets run it again... Right now, the December corn contract is much higher at $5.58, adding up to $852.80 per acre of new-crop revenue. The spread between Dec corn and anhydrous looks a little more favorable here at a margin of $21.50, but anhydrous is still on top.

What would it take for the price of corn futures to catch up with the price of a ton of anhydrous? At trendline yield, $5.72/bu. is all it takes for expected new-crop revenue to overtake the price of anhydrous. Per-acre revenue at that level yields $875.20 -- that's 90 cents above the current price of anhydrous per ton, at $875.20/acre in new-crop revenue.

The view from upstream suggests more downside room in wholesale markets for ammonia which would contribute to shrinking the gap between corn revenue and anhydrous pricing. Strength in December futures would also help thin that margin, and it looks like both sides are willing to hold up their ends for the time being.

Photo credit: minnemom / / CC BY-ND

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