Illinois farmers may be requesting federal disaster assistance after experiencing the wettest May through July in 30 years, but all those waterlogged fields may not reduce yield as much as people might expect.
“We suggest based on facts that it’s a 165 bushel-per-acre corn crop,” said Rich Nelson, chief market strategist at the McHenry, Ill.-based Allendale, speaking during the firm’s AgLeaders Conference in July. “Yes, it’s smaller than we were talking about a few months ago, but it’s nothing like what is being priced in this market right now.”
While Illinois has so far received 22.1 inches of rain between May and June, other years have been similarly wet, according to Nelson.
He pointed to a handful of historically rainy years in his presentation:
- 1981: Illinois received 22.2 inches of rain between May and June. Final state yield? 126 bu., which was 12.7 bushels higher than trend.
- 1990: Illinois received 20.4 inches of rain between May and June. Final state yield? 127 bu., which was 5.1 bushels higher than trend.
- 1993: Illinois received 20.3 inches of rain between May and June in the year of the Mississippi River floods. Final state yield? 130 bu., which was almost 3 bushels higher than trend.
That may seem hard for some growers to believe, given that some fields look more like lakes.
“In the last couple of weeks, we have went from central Ohio to eastern Colorado—same story everywhere you go—crops are damaged from too much water,” said a farmer in Delaware County, Ohio. “People ruining the farmer’s livelihood should get out of their comfortable office and see what is going on in the real world.”
Others have seen how much variability there can be in this year’s crop, even in the same area.
“Another 3.75 inches of rain in the last six days,” a farmer in Putnam County, Ind., told AgWeb’s Crop Comments on July 21. “The good crops keep looking better and better, and the bad stuff is going to be a nightmare for some guys.”
It’s a situation that suggests market volatility will continue.
“We can go lower (in terms of corn prices) the next few weeks simply because the market will realize that we have a much better crop than the market was pricing a few weeks ago,” Nelson said. “We don’t have a $4.50 December corn crop. We have something a little lower than that, because this is still a very, very respectable crop.”
With that in mind, Allendale Vice President Steve Georgy warned farmers to be realistic in their expectations and protect themselves from the possibility of falling prices.
“When you look at good to excellent (crop condition) ratings sitting where they are, when you look at pollination … and you look at what could be coming ahead, where is your risk? Is the risk that we’re going up or the risk that we’re going down?” Georgy asked during the seminar. “Owning (grain) in the bin right now is probably not a good idea in the sense that we probably can continue to gravitate lower. … If you don’t want to make sales, then let’s find some puts. Let’s find some strategies to protect you if the market goes down.”
Georgy’s recommendation: Be prepared to buy a $4.20 put on December corn and sell $4.60 calls on December corn at 12 cents. “That gives you protection below $4.20 until the end of November,” said Georgy. His other piece of advice? Sell a $3.50 December corn put at 12 cents.
This strategy allows producers to take advantage of any upside while offering protection against potential downside. “What’s going to happen if these funds decide, ‘Hey, guess what? I don’t want to be 180,000 long in corn anymore?’” Georgy asked. “We need to be careful of the downside.”
Do you think the U.S. will make, exceed, or fall below trendline yields in corn in 2015? Let us know in the comments.
A previous version of this story incorrectly stated Illinois state yields in rainy years as national. Those figures have been corrected.