Head to Head: Winter Price Potential

October 26, 2016 02:27 AM
Head to Head: Winter Price Potential

Q:  Harvest 2016 is now largely complete. Bushels have either been sold or locked away in storage for the winter. It would be helpful for producers to have their outlook for the first three to four months of 2017 to plan for sales targets or to look at options for re-ownership. Can you provide your outlook for prices into 2017, including the timing of any late-winter or early spring highs? 

 Dan Basse
 President, AgResource

Capitalize On Exports And Ethanol Demand

The world is enduring a global grain glut. In the U.S., farmers will receive a record $7 billion in Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) payments from the 2015/16 harvest. Government outlays for the 2016/17 crop year could be 50% greater. This year’s ARC and PLC payments will represent 10% of net farm income. On top of all the gloom, China is exporting corn on a rally to push farmers to plant more soybeans in 2017. 

Midwest producers will squirrel away record amounts of corn and soybeans. Because of South American crop losses this spring, the U.S. will enjoy near-record-large export demand at the Gulf through January, when the South American soybean crop becomes available.

The big demand in the coming months should provide a marketing opportunity. Export demand and historically high ethanol margins could rally spot CBOT corn to between $3.60 and $3.70 and spot CBOT soybeans to between $10.20 and $10.40. Downside price risk should be confined to $9 for November soybeans and to between $3.10 and $3.20 for December corn through 2016.

Contact Dan at basse@agresource.com.

 Andy Shissler 
 Partner, S&W Trading

Move Corn And Soybeans As Basis Improves

There are hardly any holes in production anywhere in the Midwest—a consistently good crop of corn and an amazing crop of soybeans. 

My outlook for prices into next year would have been a lot more optimistic, but this crop is just too big. I think it’s going to be very hard to get a rally in corn and soybeans. Eventually, with summer weather, I think we can approach $4 in corn, but it will come at the cost of crop production. We have hit the $4.40 area for new-crop corn the past four years in a row. There’s a good chance we’ll do it again. 

I do not think we will do much this winter or spring in the way of price movement. Prices will likely be similar to those we saw this past year. 

Soybeans should have a very hard time getting back to $10. Regardless of price, I would move as much corn and soybeans as possible when the basis gets better in December and January. You can re-own those bushels using new-crop calls for corn and soybeans. Use a call spread of $1 in corn and $2 in soybeans. Use the extra time so you are covered for the summer. Don’t let calls expire in June in case 
a weather rally ignites in July.

Contact Andy at ashissler@yahoo.com.

Disclaimer: There is substantial risk of loss in trading futures or options, and each investor and trader must consider whether this is a suitable investment. There is no guarantee the advice we give will result in profitable trades.




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