The February USDA Annual Outlook Conference will give a reality update on 2024 planted acres and supply and demand. USDA’s current outlook is based on economic models from late 2022. Soybean acres are expected to increase 3.4 million acres at the expense of corn (expected down 3.1), wheat and other acres.
Perhaps it is better stated that we need to cut corn acres by at least 3.4 million just to keep ending stocks from exceeding 3 billion bushels, a figure last seen in the mid-1980s at a price that created the worst ag recession in my memory.
The monthly corn chart was depicted a year ago with much higher prices warning of a potential $4.50 target. The current chart reflects the price cliff the supply and demand tables suggest. I doubt the ag community banks nor USDA want to deal with what price it would take to disappear the extra 1.5 billion bushels that would result if U.S. producers do not respond to market signals.
The monthly soybean chart and USDA’s supply and demand table read in stark contrast to corn. The market needs the extra acres of production. Brazil’s problems offset partially with Argentina’s likely record soybean crop over 50 mmt won’t be completely resolved until it is too late for U.S. producers to respond to any supply shock in soybeans or corn, including the safrinha corn crop.
Chart Speak
Price charts are like a picture: they’re worth a thousand words. Analysis (risk management marketing) of that money flow process helped me avoid being beholden to a lender over the decades. The analysis effort has yielded an excellent ROI, and I found the process is more of an art than a science. Perhaps that is why so few do it. The corn and soybean long-term price charts are cases in point.
Soybeans: Note point “A” corresponds to the price finally exceeding $12.00 to start January 2021, well before the Ukraine invasion. That breakout occurred four months after my analysis and computer generated (AI) buy signals supported by a monthly reversal (KR) in August 2020. While I might not have wanted to speculate on the long (buy) side, it did say “don’t sell, something is in the wind.”
Fast forward to January 2024 as ag markets have reset better than the general economy, have evaporated all the gains of the past three years and are at a major decision point again. Is $12 the worst-case low support, and has a paradigm shift in ag has occurred? Or is a 10-to-12-mmt cut in expected Brazilian crop not enough and $12 becomes resistance moving forward?
Corn: Point “B” corresponds to a sustained breakout over $4.40 on a monthly basis for the first time in seven years — a true shift in price outlook. Three years later and corn looking down at the $4.40 breakout testing if that is a valid worst-case scenario support. Or will there be a return to a seven-year trading range of $4.40 to $3.50?
What Would Jerry Do?
The 2023 soybeans are cash sold or risk adverse. The 2023 corn hedged between May and June with profits realized in fiscal 2023. Stored grains are taking advantage of huge market carry and selling call options for the premium while the North and South American weather, acres and production evolves with flexibility to move 20% to 40% of acres if the market dictates.
A conservative start to marketing 2024 crops includes hedges and capturing (selling) call options for the premiums. I have seriously considered maximizing soybean acres with profit/loss projections. Sometimes I feel like just saying no to my idea to plant corn and pay the input price piper.
Being prepared is being forewarned. The potential of good-to-average crops in both hemispheres, a pause in the Ukrainian war and the desired global reset in inflation all point to headwinds I didn’t think I’d have to contend with. A strong return to Marketing 101, which I saw in the 1980s, may be on the horizon.
We all get a life-education; I just didn’t need two rounds of it!
