The September WASDE was viewed as negatively biased due to the support given to yields and the addition of more planted/harvested corn acres. Arguments can be made as to the protocol used by USDA-NASS to determine yields, but it is what it is until Oct. 12 or even Jan. 12, 2024. Besides the questionable satellite images of greenery, I have difficulty wondering why field observations ended before the hot/humid days of early September. The chart below shows when various elements of the survey ended and certainly exhibits some doubts as to the timeliness and accuracy, but the market trades the whole report.
CORN: It is Sept. 15. The last trading day for a continuous chart for was yesterday, and December becomes lead contract today; depending on whether one uses Sept. 1 or Sept. 14 expiration, December becomes lead contract. Doing so during the week allows for the total trading to post a weekly reversal higher as December is 18 cents higher than when September expired on the 14 and 20 cents higher than where September futures were on Sept. 1 if that is the protocol used for continuous pricing.
Continuous pricing is important as the lead contract represents the demand month.
There is now a gap area to either be filled, meaning a drop in price, or if left unfilled, is further confirmation the “harvest” lows in a futures contract are behind us; basis is keeping cash prices low due to weak exports, low Mississippi River levels, etc., and economic headwinds. Remember the 2023-24 marketing year began Sept. 1.
The economic headwinds being touted today as the cause for low corn and wheat prices and soybeans that are equally in jeopardy were discussed months ago. Read the “Black Swan Wake-Up Call” column that ran in the March/April 2023 Top Producer issue and see the chart below. Corn subsequently reached $4.60 via the September futures.
The current price situation begs the question: There’s speculation producers have not pre-sold much in the cash market, but will they cave at harvest? If so, it opens up downside risk to the previous lows made in the continuous chart of $4.60.
With insurance in play, odds seem slim, but if that happens producers have ways to take advantage of upside price movement. On or about Oct. 15, the October average insurance price will be largely set. It is what the producer does with corn after that matters; RMA price insurance basically ends Oct 15.
There is a lot of speculation emerging on whether a producer should sell at harvest if he hasn’t already adequately done so. Market carry is one reason to do so, but you can’t capture that carry by sitting on the bushels. Just because there is a carry to March, for example in corn, doesn’t mean it will be there when March is the lead contract.
Some tout selling corn and buying a call, especially elevators (end users).
March $5 calls are 19 cents, which means they don’t really pay off unless corn, which is currently selling for $4.76, increases 43 cents. Is there something in the marketplace that suggests corn will rally 44 cents? If there is, information is lacking. South American weather might be one of those things.
Risk management measures of the 1980s and 1990s are important again as the Fed no longer is saying they have our back with near-zero interest rates. They are content to let risk return to the marketplace again.
If you feel you need assistance to understand and navigate the troubled waters ahead, give us a call at (707) 365-0601 or send a note to www.info@gulkegroup and we will respond.
