The volatility in the grain markets will be high at the end of this month with two huge USDA reports, possible tariffs and end of the quarter all intersecting.
Average trade guesses are starting to be released for the USDA Prospective Plantings Report and are around 94.361 million acres of corn and increase of nearly 3.8 million acres from last year.
Soybean acreage is pegged at 83.762 million, down 3.3. million from a year ago and wheat at 46.47 million acres, down from 47 million.
Kent Beadle, Paradigm Futures, says 94 to 95 million acres of corn is already priced into the market but is a result of corn being more profitable per acre than soybeans but that profitability is margin is very slim.
“At a $4 .50 price, I think that’s the number that’s likely priced in. $4 .50 is still grossly unprofitable for the American farmer. That is a price that is unprofitable, probably by about 60 cents a bushel if you use 181 bushel yield,” he says.
Beadle believes 84 million acres or less of soybeans are programmed into the current price, which is actually under the cost of production at current prices on the board of around $10 says Beadle.
“That get your balance sheet down to 320 million bushels according to the USDA. We actually think demand is going to tighten that up a little bit more and you know, honestly, it’s the $84 million with a $10 to $10 and 50 -cent futures price. We don’t think it’s an adequate price for soybeans, but clearly the markets is certainly anticipating that we’re going to have $84 million and possibly less,” he explains.
Average estimates on for the USDA Quarterly Stocks report have corn at 8.151 billion bu., down 200 million bu. from a year ago, with soybean stocks up 55 million at 1.901 billion and wheat at 1.216 billion also up 126 million bu.
However, Beadle says quarterly stocks are always very difficult to predict.
“Its a coin toss for me,” he says.
So the reports also coincide with the deadline for tariffs on Mexico and Canada and reciprocal tarrifs on April 2.
Add that to the end usual profit taking that comes at the end of the month and end of the quarter profit taking and it is likely to be highly volatile.
How farmers can prepare for that volatility?
He recommends farmers get some sort of risk management strategy in place to at least put a flood under grain prices.
Beadle says, If you’re going to sell futures or do hedge to arrives, you know, we certainly like some call option spreads to maintain your upside. Otherwise, just straight puts and maybe even short dated puts to reduce the size of the premium is what we would recommend.”
