Perspective 12-13-19

TOP FARMER INTELLIGENCE – Weekly Perspective by Bryan Doherty



As 2019 comes to a close, we think of the many major variables that impacted price movement. In the end, the corn crop will not be what it could have been. By many accounts, it will prove, once again, to be better than anticipated than during the spring/summer months. Record short managed money positions plagued prices all spring. Yet a cold and wet pattern kept farmers from making field progress, sending prices over $1 higher by mid-June. A high dollar, record late-planted crop, record prevent plant acres, African swine fever, and a late fall were all events that influenced price movement. Perhaps the biggest story affecting prices, and probably the story that had the least amount of press coverage, was Brazilian corn production.

Let’s go back to the fall of 2018. A prolonged harvest and difficult field conditions (due to excessive rainfall) left many frustrated and in need of good spring weather to catch up on fieldwork. Unfortunately, for many, that didn’t happen. A wet spring picked up where fall left off. As a consequence, much of the corn crop was planted later than normal. In fact, a record 1/3 of planted acres occurred after June 2. The odds of high yield were probably not good, yet to be eligible for a market facilitation payment, you had to plant. Farmers ran around the clock in June, trying their best to plant as much as they could. Expectations for a higher fall insurance revenue guarantee may have contributed to farmers’ decisions to plant beyond their prevent plant date, the date in which you could be eligible for an indemnity if you were unable to get insured acres planted.

The resiliency of producers to manage their crop the best they could and near-ideal growing weather after the second week of June helped to improve yield prospects. Trade uncertainty, slowing ethanol demand, and far more planted acres than expected weighed on futures prices, as December corn dropped from its peak in June to a new contract low in August. Additionally, a large carry-in of supply from the previous year, trade discombobulation, African swine fever, and unfavorable EPA waivers were also factors that weighed on corn prices.

In 2018, Brazil exported near 22 mmt, and in 2019 this will jump to an estimated 41 mmt, or more than 80%. The summer months were particularly fruitful to the Brazilian producers who saw the Brazilian real drop in value, while the U.S. dollar rose. Since Brazilian corn is priced in U.S. dollars, the incentive to sell was strong. The U.S. became a secondary market to Brazil, as Brazilian exports soared during the summer, averaging more than 5 mmt per month. This year’s increase in Brazilian exports is near 700 million bushels, a reason why U.S. carryout is larger than anticipated and exports slower.

2019 is a year that many would like to forget. From a pricing perspective, producers were challenged. How do you price a crop that is planted a month late? You don’t! With hindsight, prices were days from peaking when most producers who had late crops were still in the field. Perhaps a lesson learned, despite monumental challenges during spring, is that great farmers and great technology get the job done! Be aggressive sellers on rallies, and have these positions covered. Do this by purchasing call options. On bushels you intend not to forward sell, floor the market through the use of put options. We recommend using options in December. Be balanced and prepared for most anything. This is where strategy will outperform outlook.

If you have questions on cash marketing strategies or would like ideas for your operation, contact Top Farmer at 1-800-TOP-FARMER extension 129. Ask for Bryan Doherty.

Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.



Carol Tillmann

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