Head to Head: Lethargic Markets

January 7, 2014 06:20 PM

Q:  There will be much debate during the next few months as to the acreage mix for the 2014 corn and soybean crops. What is your expectation for 2014 corn and soybean acres, and how aggressive should producers be marketing 2014 production prior to planting the crop?

Buy Put Options for Protection

mark gold

Mark Gol
President & CEO
Top Third Ag Marketing LLC

Many grain traders believe farmers will switch a great deal of corn acres to beans, but I’m not so sure the switch will be all that large.

The new-crop price relationship shows a corn:bean ratio of about 2.5:1. While it favors beans, the decision to plant beans isn’t strictly a business decision. Farmers love to grow corn. If there’s going to be an unexpected yield bump, they feel it will be in corn.

Could a farmer with an APH of 160-bu.-per-acre corn grow 200 bu. or 240 bu.? If we learned anything last year, it’s that huge corn yields are out there, if Mother Nature cooperates. Also, if farmers can get into fields in a timely fashion, they will plant corn.

With that said, marketing this year will be crucial. Farmers are sitting on a lot of corn and beans hoping for a spring price rally. If Mother Nature provides good weather, there is no telling how big yields can get.

If you think prices can’t go any lower, think again. Prices have a propensity to move under the cost of production to force out inefficient producers. While the charts might look like they can’t go any lower, there is still plenty of risk out there, which needs to be protected. You can buy put options to protect any unsold bushels.

Put a Floor Under 2014 Production

sue martin

Sue Martin
President & Owner
Ag & Investment Services Inc.

Corn on corn has been highly profitable during the past five years, but yields have suffered due to insect pressures.

While farmers are aware of the huge bean crop in Brazil, they are also aware of the need to shift acres back to a normal rotation to abate cutworm issues. In addition, today’s cheap prices, even bleaker outlook for the 2014 growing season, and growing global and domestic stocks entice farmers to switch a percentage of their corn acres to beans.

Last September, the Conservation Reserve Program lost 3.3 million acres, most of which will likely move to soybeans and wheat.

If farmers have not had cutworm issues and enjoyed good yields, they will stay with corn. Farmers love to plant corn. For 2014, look for 91.8 million acres of corn to be planted and 81.7 million acres of soybeans.

Spring weather will impact acreage shifts. Come the June planting report, I wonder if corn will surprise us with more acres than was estimated in the March report?

Given the potential for record South American and U.S. crops, farmers might be wise to floor their 2014 production. The question remains, "When is the best time?" Timing is always more important than price.

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 that the advice we give will result in profitable trades.

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