The CME and Total Farm Marketing Offices will be closed Friday, July 4, in Observance of Independence Day
Probing for a Bottom in Corn?
What’s Happened…
September corn futures peaked in February at just over $4.82. Since then, prices have been in a steady downtrend, finding a low just above $4.00 on July 1; a change of just over 17%. Weather conditions throughout most of the Corn Belt have improved since mid-May. The current forecast suggests most of the Midwest will receive above-normal rainfall in the second week of July. The USDA showed an increase in crop ratings from 68% good to excellent the week of June 23 to 73% on the June 30 report. This has kept money managers actively selling corn futures, according to the weekly Commitment of Traders Report (COT). As of June 22, the COT indicated a net short position by managed money of over 180,000 corn contracts. This compares to over 350,000 long contracts in March.
Prices may well have already factored in a very good scenario (if not best-case scenario) for yield. Another variable for corn prices that may become increasingly important for a longer-term view is the value of the U.S. dollar, which recently hit a three-year low. Between a weak dollar (down over 12% since January) and 17% drop in corn futures, it is feasible to anticipate that futures prices may be trying to find a low.
Why this is Important…
From a producer’s perspective, selling at current price levels likely doesn’t make a lot of sense unless your personal perspective is significantly bearish. If wanting to defend prices, you could use futures which are flexible, or purchase options to establish a price floor. Bullish traders can argue that a weak U.S. dollar and a low corn futures price is a recipe for stronger demand. If you are a buyer of corn, you may not want to wait. Consider starting to buy sooner rather than later with cash contracts, futures, or long call options.
What can you do about it?
The implication from all this data for end users is to think about securing inventory. Three approaches to consider are to buy cash corn, buy futures, or buy call options. Cash can be done through spot buying or forward contracting. Buying futures and buying call options are alternatives as well. If you are a corn farmer, you may want to be patient and wait for better days.
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 30 years at Total Farm Marketing and a 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 tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the 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