Is It Wise to Delay Corn Futures Pricing?
Sep 08, 2017
Old crop corn shocked the system the past few weeks. The fundamentals are still bearish in corn, but we may have seen the market low. It’s not so surprising--this happened last year too, because there was a similar rush to move old crop corn. There’s not a huge upside, but I think it’s wise to delay futures pricing right now.
How to delay futures pricing without storage? Elevator storage is expensive, but many elevators allow basis contracts that delays futures pricing. If the market has made the low as it appears, delaying futures may pay off. I don’t expect to see huge gains with this strategy, but a dime or two goes a long way. For example, 100,000 bushels times 20 cents is $20,000. It’s not a thrilling gain like $5 corn would be, but still makes a huge difference to the bottom line.
Why not buy calls instead of using a basis contract? I don’t think corn will move that much. As I mentioned, a dime or two is realistic. It takes a major swing to benefit from options. Delaying futures in a basis or brokerage contract seems to be a better bet.
Why not store instead? Although I do plan to store unpriced corn on a percentage of my production, it’s not realistic for every bushel. For one, cash flow needs are strong. Elevators here pay a percentage of the money early. Two, some can't store every bushel, if any. Three, it’s easier to deliver the bushels rather than the hassle of putting them into storage for a short period. If basis improves short-term, it can be beneficial to store short-term, but simplicity and liability are worth something.
The hurricane path is still unknown. We’re combining like crazy in Kentucky to get the corn out of the field. Damage in Kentucky will not be a huge impact not the market and the Delta has made significant progress and is already finished in many areas. A small scare may still boost futures. Again, this could be a short-term and small opportunity.
I don’t expect $5 corn. I’ve heard many bullish arguments to support $5 corn, but the bushels are there in my opinion. I recommend delaying futures on at least a portion of production. The trick will be discipline to take a small gain. Don’t expect a huge upside, but take small opportunities as they present themselves.
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