Old-Crop Marketing Considerations in A Rising Price Environment

15:43PM May 21, 2019
Chrysanthemum

Delayed planting of corn and soybeans is injecting life back into the grain markets. As of May 19, just under half of the U.S. corn crop is planted, which compares to a five-year average of 80% for this time period. This year’s corn planting pace is the slowest since 1995.

For soybeans, the planting pace is equally slow. As of May 19, 19% of the U.S. soybean crop is in the ground. The five-year average for May 19 is 47% planted.

These planting concerns have taken new-crop corn and soybean prices higher, as well as old-crop prices, says Rich Nelson, chief strategist with Allendale.

“This will certainly be important over the next one to two months as we have to move some old crop out and prepare for new-crop production,” he says.

Will the current weather market continue to lift all contracts and provide you with good old-crop pricing opportunities? First, let’s take a step back and look at the overall demand picture.

Optimism in Corn Prices

“Obviously, we all understand that old-crop demand has been revised quite a bit lower in the past few months by USDA—validly so,” Nelson says. “With slow trade process, this continued old-crop demand issue will continue to plague us.” 

In terms of ethanol demand, Nelson says, we’ve seen a moderate rebound on a year-to-year basis. But ethanol plants continue to become more efficient and need to use less corn overall. 

“We have a little concern about the demand pull from ethanol plants, although it has increased in the past few weeks,” he says. “Will they bid up too much more?”

As far as corn exports, demand continues to trend lower than last year. In the past four weeks, corn exports have shown a year-over-year decrease of 24%. In the past eight weeks, corn exports have been 32% lower than 2018. 

To meet USDA’s current export demand goal, Nelson says, corn exports must be higher than last year’s numbers. “At this point in time, that is maybe a little too optimistic,” he says.

If farmers want to move old-crop corn, Nelson suggests looking at some re-ownership via the new-crop contracts or new-crop option positions.  

Also, watch new-crop corn prices, as planting delays are a valid market concern, Nelson says, as acres and yields will come into question.

“With a 2.5-million-acre cut in planted acreage, and a full 7-bu. drop in yields to 169.0 bu/acre, we see new crop ending stocks falling to 2.090 billion eventually,” Nelson says. “That allows for a summer rally to $4.31 for December corn.”

Soybean Demand in Question

The soybean market has a similar story, Nelson says, but maybe a less positive one. The demand picture for soybeans has changed due to the little progress in trade talks with China, which has been recognized by USDA.

“USDA did lower their export goal for old-crop soybeans by 100 million bushels,” he says. “The question is, ‘Does that now take care of the export situation?’”

Soybean exports have been down 48% in the last four weeks compared to last year. For the past eight weeks, soybean exports have been down 33% versus 2018. With the current export pace, Nelson says, USDA may have to further lower its export goal.

“We could argue that if there was progress toward a trade deal with any type of extra Chinese buying, it would erase a lot of our concerns regarding the export sales issue,” he says. “But I think we can all agree this issue is not on the table at least in the next few weeks.”

On the demand side of the soybean balance sheet, Nelson says, dramatic upswings in prices look muted, beyond the current new-crop weather concerns. 

“We can't make a strong argument for a big demand pull from our soybean buyers,” he says. 

 

Hear more commentary from Nelson in a free webinar from Allendale: Cash Grain Levels Into Summer

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