The CME and Total Farm Marketing offices will be closed Monday, January 19, in observance of Martin Luther King Jr. Day.

USDA Report Confirms Record Crop

What’s Happened…

The much-anticipated January 12 USDA WASDE report (World Agriculture Supply and Demand Expectations) contained surprises and didn’t disappoint if you were anticipating a big market move in response to the report. However, for corn producers, it couldn’t have been a much worse case scenario. Not only did the USDA raise yield, it also raised harvested acres. Both figures were a double whammy which sent corn prices screeching lower, losing $0.25 on the session.  

Pre-report estimates had yield declining to 184 bushels per acre (bpa) while the actual figure showed an increase of .5 bushels to 186.5. Harvested acres were expected to be unchanged at 90 million; however, increased to 91.3. Lower silage acres and less abandoned acres were cited as reasons why. Carryout (the bottom-line figure on the supply and demand table) increased 198 million bushels to 2.227 billion. Expectations were for 1.8 billion. 

Why this is Important…

For producers, this was devastating. It was hoped that corn prices might finally get some friendly news to push overhead price resistance. A year ago in the January report, yield dropped over 3 bushels; however, it still represented an all-time record at 179.3 bpa. With disease pressure and much of the Midwest experiencing dry conditions in August, the market sentiment was for lower numbers.  

If a lesson is to be learned, it’s that trying to outguess a report and the market’s subsequent reaction is a challenging task. The odds are not favorable that you will be right. Reports can be bullish, bearish, or neutral. The reaction to each outcome can be bullish, bearish, or neutral.

What can you do about it?

Spend time anticipating potential market moves and managing them. We have stated before, marketing never takes a day off. The January report historically can have changes and lead to volatile price reactions. Follow your instincts. Many probably do not talk about this much, however, in the author’s opinion, this is powerful. While it is hard to quantify what this means, your instinct (intuition) is made up of experience and a lifetime of learning. It will probably give you a sense of what action to take. The key is following through. Lastly, strive for a balance. If over-weighted with too much corn in storage, what can you do to create an environment to cushion against negative price action yet participate in a price rally? Conversations with the right people, building knowledge, and intentional execution are likely (in the long run) to benefit your farm operation.

Find out what works for you… 

Work with a professional to find the strategy or strategies that are best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation and less emotionally–charged responses to market moves, which are always dynamic.   

About the Author: With the wisdom of over 36 years at Total Farm Marketing and following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of Brokerage Solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the markets and marketing tools, a strong listener, and communicates with intent and clarity to ensure clients are comfortable with their decisions. 

The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.

Author

Bryan Doherty