Supply is Strong, Timing is Critical

December 20, 2016 11:22 AM
Dice on Stocks

More than ever, as we look toward 2017, the best advice I can give is to prepare for whatever unexpected events will push up volatility and market risk. Price is set by supply and demand. A big crop has been produced and world stocks are abundant. Global production prospects appear solid and, barring the unforeseen, supplies of corn, soybeans and wheat will stay burdensome.

The markets will likely remain bearish until mid-February. I recommend no new pricing during this period. However, take steps to buy fall calls to manage the risk of a summer weather event. Feed buyers should have all spring and summer feed needs bought before the February USDA supply-demand reports. 

The March-to-May period will have a slight upward bias, driven primarily by Chinese buying of South American crops and the planting season. I believe soybean acres will be up significantly in 2017, keeping pressure on the November 2017 contract. Any hedges should be in deferred and short futures rather than options. I also expect corn acres will be down, which, if met with some spring weather delays, could help corn prices bounce up next spring.

Further in 2017, variables that affect supply and demand will become less predictable. I’m forecasting corn yields will exceed 168 bu. per acre and soybean yields will be more than 47 bu. This implies a corn carryover potential above 2.4 billion and a soybean carryover higher than 480 million. The May-to-July weather scare has to drop yields enough to lose 1 billion bushels of corn and 280 million bushels of soybeans before supply gets tight. 

Producers have to be early sellers of December 2017 corn at $3.95 to $4.20 and November 2017 soybeans at $10 to $10.40. Have a plan to deal with a July-to-August weather event. 

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Spell Check

Farmer 32
Grand Forks, ND
12/21/2016 06:16 AM

  Good article short and sweet. Realistic. Keep working on your landlords try get rent down.


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