With the USDA Prospective Plantings and quarterly Grains Stocks reports in the rearview mirror, the market will now focus on weather for the planting season. Corn and soybeans have a seasonal tendency to rally from the reports into summer.
As a result, many market advisers are suggesting farmers use strong rallies to clean up old-crop supplies of corn and the few remaining bushels of soybeans. However, they prefer farmers be more patient with new crop sales depending on the weather.
When To Clean Out The Bin
“The outlook for old-crop soybeans has improved slightly due to production concerns out of South America and the likelihood total South American soybean production will not be much higher than last year,” says Randy Martinson of Martinson Ag.
For old-crop soybeans, he recommends making sales once July futures close above $15.
For old-crop corn, China’s buying spree of 128 million bushels (as of March 30) has started to improve export demand. Martinson says that is helping support futures and cash basis levels, and he’s recommending old crop sales above $6.50 futures.
2023 Crop Triggers
With USDA projecting only 87.5 million acres, the market might need to buy some soybean acres.
Chip Nellinger with Blue Reef Agri-Marketing says he’s 30% sold on November soybeans at $14.
“If prices rally back above $13.80, I am looking to sell another 20% and will buy puts beyond 50%,” he explains.
New-crop soybeans, even with steady acres in the U.S., could fall under pressure due to competition from Brazil in the fall, adds Darren Frye of Water Street Solutions.
“That could rob export business from the U.S., even though I expect biofuels to be a big driver for the bulls,” he says. “I recommend farmers stay aggressively hedged in new-crop soybeans unless prices close higher than $13.45.”
If corn planting is delayed, December corn prices don’t have much of a weather premium. That could spark a rally, especially as the calendar flips to the month of May. Nellinger recommends selling 25% on a rally back to $5.90 to $6 and hold previously purchased call option positions, or flip calls to puts at that point.
The Word on Wheat
Weather could also delay spring wheat planting in the north and acreage intentions are already the lowest in 50 years at only 10.57 million acres. As a result, Martinson is advising farmers to hold off on making sales of old and new crop at this time.
“Wheat has just started to re-establish a weather premium in an attempt to try work in a premium for potential production problems in the Southern Plains and planting issues in the Northern Plains,” he says.
Basis levels should improve for old crop in April as physically delivering the product will be difficult due to road conditions. For futures he’s targeting $9.25 on Minneapolis wheat to advance sales for both old and new crop.
USDA has pegged hard red winter wheat acres at 26 million which is up 13% from last season with the crop insurance guarantee as an incentive to plant. However, Frye expects around 35% of those acres will be abandoned due to the dry conditions and the first national crop rating is historically low at 28% good to excellent.
So, there may be more upside potential for Kansas City wheat. That has some market advisors holding off and waiting for higher prices, but again it depends on the amount of moisture drought areas of the central and southern plains receive during the key reproductive stages.
For soft red winter wheat Nellinger says they have made some pre-sales on new crop but may sell the balance of the crop or purchase September puts if the July Chicago wheat futures rally back to $7.90.
Currently, the funds are near record short in that market, but the crop has seen an improvement in conditions and slow demand which may make rallies difficult. Additionally, Chicago wheat has been the short leg of inter-commodity spreads that feature Kansas City wheat as the long leg. That has also pressured the soft red contract.
