Scheve: Farmers Are Asking - What Are You Going To Do Now?
Jul 16, 2018
Market Commentary for 7/13/18
The most recent USDA report showed some potential for the corn market with strong demand expected to continue. This could mean current corn prices are near a bottom. However, the great weather throughout June and early July suggests the national yield could be another record, possibly exceeding 180 bu/acre. If yields are then less than 180, a rally is likely, and if yields are higher than 180, prices will probably trend lower.
The USDA increased old crop and export usage estimates, which could have been bullish. Unfortunately, the trade war triggered the USDA to reduce future exports by more than 10%, meaning next year's carryout could be substantially larger than current levels. This also assumed an average 48.5 bu/ac national yield. With current weather, yields may reach 50 or even 52, which would likely mean sub $8 on Nov futures.
If the trade war would end soon and China continued buying US beans, prices would increase quickly above $10. Unfortunately, it’s doubtful the differences between what both governments want will be resolved soon. China has said they will look for alternative protein sources and are willing to draw down on their bean stocks to ride this out as long as possible.
What Are You Going To Do Now?
I've been asked this question a lot over the past few weeks.
I'm 100% sold on my '18 crop. With what I know today, I'm really happy I sold when I did. Right now I see no reason to get out my bean hedges. It's impossible today to guess how the trade war will go or what final national yields will be to determine the bottom of the market accurately. So, I'm not making any changes.
I want and need bean prices to rally, so corn prices increase.
2017 - With what I know today, I wasn't aggressive enough selling my '17 crop. Still, looking back there was never really a great opportunity to sell this past year at profitable levels. I still have 45% left to sell.
2018 - I'm nearly 40% sold above $4.20, which I'm happy about. But, unless corn rallies soon I'm going to shift these sales back against my ‘17 crop, leaving me completely unpriced on my '18 crop. This may work out if the '18 national yield averages less than 180 bu/ac and the carryout is below 2 billion, then prices have some upside potential to them. If not, I'll need to consider alternative solutions to reduce my losses on the price I take for my corn in ‘18.
There are a lot of hopeful maybes for farmers right now. Maybe the good weather will not continue through August and the national yield will be below 180, allowing for a potential rally. Maybe the tariff issues will be resolved in the next 3-6 months. Maybe Trump will fulfill his promise to help farmers with the tariff issues and provide some kind of support program. Maybe there is production issue in another corn producing country that helps prices. Maybe wheat production around the world decreases as usage increases, pulling corn prices up too. Maybe El Nino makes an appearance next summer and drives prices higher due to unfavorable weather issues in the US.
Maybe the best thing to do right now is nothing.
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