A third thing that I found interesting last week is the amount of market chatter about switching acres from corn to soybeans. Talk of 1 to 2.5 million acres of corn being switched into soybeans or other crops abounded, which put some pressure on the soybean market. However, it isn’t likely that many farmers are making that decision at this point, and wouldn’t until late May because corn production would be more profitable and they likely have already contracted and/or purchased seed to grow corn. Further, the late planting date for crop insurance isn’t until late May for many key Corn Belt states.
Finally, despite the market’s willingness to trade the weather risk on Monday last week, growing world-wide economic concerns from Asia and Europe were easily able to suppress gains for the remainder of the week. For Tuesday through Friday last week, July corn futures only gained $0.015/bu. So, it appears like traders aren’t willing to make big bets about the slow planting pace yet.
A modest decrease in yield and even acres doesn’t necessarily have to have a large impact on prices for the 2013/14 marketing year. In February, USDA projected next marketing year’s ending stocks at 2.177 billion bushels using a 96.5 million acre figure for planted acres and trendline yield of 163.6 bu/acre. Since then, USDA’s Prospective Plantings report increased acres to 97.3 million acres. While we won’t see USDA’s updated 2013 yield forecast until Friday, May 10 in the monthly WASDE report, many in the trade expect national yields in the 150-155 bu/a range. This would still provide for a comfortable stocks-to-use ratio for the 2013/14 marketing year. Interestingly, even if planted acres were decreased by 2 million acres due to late planting and switching to soybeans and national yield declined by 5 bu/acre, total production would drop by only 10 million bushels. Even with no adjustment to use estimates, ending stocks could easily absorb this decrease without much of a price increase. Seemingly reflecting that, December new crop corn futures increased only $0.295/bu compared to $0.415/bu for old crop July futures.
The outlook for corn production this last week was mostly negative, and therefore bullish to price, which opens the possibility for increased production problems into the growing season and still higher prices. However, the production conditions and market events that would be needed to drive prices significantly higher are not a certainty and wouldn’t occur until well into the growing season even if they do happen (e.g., late planting impacts in late May, pollination problems in July, etc.). For those reasons, I think the current rally in corn prices is one to use to advance sales of old crop corn. Stronger basis bids further the incentive to price additional bushels of stored corn. From a technical perspective, the current price rally has retraced almost 50% of its loss since the March 28 Grain Stocks report and needed to only increase another $0.15/bu to close the gap created on the chart on April 1 (Figure 1). For the market to increase further at this time, it will require continued slow planting progress and poor weather forecasts for the next couple of weeks. If you believe those possibilities may materialize, use a flexible pricing strategy like put options or minimum price contracts to lock in a floor price. At this point, the only old crop bushels that should remain unpriced should be those that you are willing to risk for a summer weather market scare.