It has been a challenge yet again to maintain a marketing plan and an emotional balance. We were expecting big corn and soybean planted acres, a world economy that was simply struggling and no big surprises in demand. As harvest nears, there is still a lot of uneasiness about acres and yields wreaking havoc in all marketing situations.
For corn and soybeans, it comes down to these factors:
- Can good production areas (western and northern Corn Belt) really produce enough to offset the bad areas?
- Is USDA too high on planted acres?
- How many acres will be harvested?
The August USDA reports shed a little insight, but a lot of uncertainty remains. My gut tells me we will not know how good yields will be until the combines start to roll, and more than likely, we will not have a firm handle on total acres until the January report.
What has to happen to improve corn prices? On the supply side, any loss of more than 900,000 acres would be positive, but the big factor is U.S. yield does not grow too much above 165 bu., which means USDA’s yield of 168.8 bu. must be confirmed lower. On the demand side, watch the ethanol outlook and profit margins. If profit margins move into the red from the fourth quarter of 2015 to the first quarter of 2016, it should put basis under a lot of pressure for cash corn. With corn and soybeans, we will have to see just how steep of a correction China experiences.
On the upside for corn, initial overhead resistance is at $4.05 with solid resistance at $4.50, which requires major supply surprises to move higher. However, a violation of $3.50 is possible but will be difficult to sustain due to aggressive on-farm holding. Store to capture carry, wait for basis to adjust and be mentally prepared to sell any modest price recovery from December to January when major reports could cause market volatility.
For soybeans, it appears the weather has helped the acres that did get planted, so a yield closer to 46 bu. should not be a surprise. Demand uncertainty from China and lower hog numbers will likely keep a lid on soybean exports. Soybean prices have a chance to bounce, but a weaker demand outlook and potential for better yields is really cutting into upside expectation. Prices above $10 will be difficult to surpass unless expectations about planted acres actually exceed concerns and future reports.
I prefer storing soybeans rather than corn even though there is limited carry incentive. If storing soybeans is not possible, buy back soybeans on technically oversold conditions using futures or deep-in-the-money calls that have limited time value cost.
Winter wheat production was a disaster this year because of excessively wet conditions. However, spring wheat yields in the northern production regions are exceeding expectations. These two factors, coupled with generally good global supplies, have allowed wheat to make new lows.
I suspect many farmers will consider dropping wheat from their rotation cycle for a while. If that appears to be the case, it could help stabilize prices. I’m in no hurry to suggest selling expected 2016 production.
Closely watch winter wheat technicals in September and October for a significant low. If it is confirmed, consider these steps:
- convert all short futures to known risk put positions;
- consider selling out-of-the-money puts for time value decay to enhance cash sales; or
- if anyone must sell wheat, buy out-of-the-money July 2016 calls to help make seasonal sales from February to April.