Carl German, Extension Crops Marketing Specialist; firstname.lastname@example.org
Market Factors Competing with Seasonal Rally
The primary question on many grain producers minds at this point in time has got to be something along the line – “When will the seasonal price rally for corn begin”? The question becomes more pressing each passing day as market forces, both those considered inside and outside, are taking their toll on commodity prices. To further exacerbate the problem, commercial and non-commercial traders have been stepping to the sidelines due to the uncertainty caused by world economic conditions i.e., Greece. Plummeting crude oil prices, a decline in the Dow resulting from the economic uncertainty, lagging world demand, and relative strength in the dollar have also attributed to keeping a lid on commodity prices. Yet, it is too early to call grain prices out for the season. Much can happen between now and harvest, among other things, the weather can change from the near ideal conditions that the U.S. has experienced thus far. On a positive note, U.S. corn and soybean exports were reported to be bullish in this morning’s export sales report.
Crop progress is another factor impacting the possibility of getting a seasonal rally for corn this year before the first week of June. As of Monday May 17, 87% of the U.S. corn crop was planted, 26 points ahead of last year and 9 points ahead of the five year average. A little over half of the corn crop has emerged, about double a year ago and 16 points ahead of the five year average. About 40 percent of the soybean crop is planted, double last year’s pace and just ahead of the five year average. Soybean crop emergence, reported at 13%, was 8 points ahead of last year and 4 points ahead of the five year average. Crop conditions for new crop corn development were reported at 67% good to excellent.
USDA Export Sales Report (week ending 5/13/10)
Pre-report estimates for weekly export sales of soybeans (combined old-crop and new-crop) ranged from 18.4 million bushels to 23.9 million bushels. The weekly report showed total export sales of 20.8 million bushels, with old-crop sales of 17.6 million bushels, above the 4.5 million bushels needed this week to stay on pace with USDA’s demand projection of 1.455 billion bushels. Total shipments of 10 million bushels were above the 9 million bushels needed this week. This report should be viewed as bullish.
Pre-report estimates had weekly corn export sales at 37.4 million bushels to 49.2 million bushels. The weekly report showed total export sales of 62.1 million bushels, with old-crop sales of 53.3 million bushels, well above the 17.9 million bushels needed this week to stay on pace with USDA’s demand projection of 1.95 billion bushels. Total shipments of 38.5 million bushels were below the 45.3 million bushels needed this week. This report should be viewed as bullish.
Pre-report estimates for wheat ranged between 5.5 to 16.5 million bushels. The weekly report showed total export sales of 16.7 million bushels with old-crop sales of 9.2 million bushels, above the 7.3 million bushels needed this week to stay on pace with USDA’s projected 865 million bushels. Shipments of 12.3 million bushels were well below the 32.7 million bushels needed this week. This report should be viewed as bearish.
Some of the best pricing opportunities for new crop corn the past two marketing years occurred on or about the first of June. The possibility of that event occurring again this year is beginning to look rather remote. However, the possibility still exits and/or for some unknown reason may occur later in the growing season.
New crop Dec ‘10 corn futures are currently trading in the bottom third of the recent historic price range, closing at $3.78 per bushel on May 19. New crop Nov ‘10 soybean futures are trading in likewise fashion, closing at $9.05 per bushel. When commodity prices are in their bottom third of the price range the opportunities for making sales and the alternatives available for use are greatly diminished.
New crop basis bids for corn and soybeans, currently at 10 over for corn and 35 to 45 under for soybeans in Southern Delaware, are not indicative that making new crop sales in the cash market are warranted at this time. An at-the-money $3.80 corn put with a premium of 34 cents per bushel and an anticipated basis of 29 over equates to a minimum selling price of $3.75 per bushel, excluding commission. Using puts is being suggested as something to think about for those lagging in advancing new crop sales and/or those concerned that new crop prices could turn much lower between now and harvest. Those looking for a way to get back in the market for previously sold corn might consider employing either the purchase of a call or employing a call spread by buying a $4.00 September call (currently priced at 14 cents per bushel) and selling a $4.50 Dec call (currently priced at 12 ¾ cents per bushel), both considered speculative market maneuvers. This spread reduces the costs of the call and if exercised places a grain marketer in a short futures (hedge) position at the $4.50 strike price. Sometimes the best course of action to follow is to do nothing, see what the summer brings. Problem is, waiting could put one in a precarious position in the event that record or near record corn and soybean crops are produced in the U.S. this growing season.
For technical assistance on making grain marketing decisions contact Carl L. German, Extension Crops Marketing Specialist.