Capturing higher corn futures prices
The month of May tends to be critical for planting corn, but also for marketing both old and new crop bushels.
This is the timeframe when the greatest uncertainty for corn production in the world occurs. That is because nearly 85 percent of the global feed grains are produced in the northern hemisphere. When May rolls around and late, wet corn planting conditions occur, speculative investors often called funds must “short-cover” their previous “long futures” positions. This creates a sudden rally in the corn futures markets called seasonals, which are often lead to the highest prices of the year.
For Iowa farmers, selling into these spring price rallies has worked well the past four years. However, it is much easier for a farmer when the late, wet corn planting conditions is occurring in some other region the Corn Belt. The weather-scare rallies in May the last few years have been great opportunities to sell old crop bushels as well as make new-crop sales.
Look at evidence of short-covering in corn futures contracts that occurred the week of May 13, 2019. The life-of-contract low for December ’19 corn futures was reached early in the trade on Monday, May 13 at $4.63 3/4 per bushel. That same futures contract rallied each weekday, closing more than 35 cents higher for the week. Similar rallies have occurred in December corn futures in each of the past 4 years.
– 2018 December ’18 corn posted a low on April 20, then rallied 27 cents until May 24 with a seasonal high of $4.29
– 2017 December ’17 corn posted a low on April 21, then rallied 38 cents until July 11 with a seasonal high of $4.17
– 2016 December ’16 corn posted a low on April 25, then rallied 70 cents until June 17 with a seasonal high of $4.49
– 2015 December ’15 corn fell 20 cents lower from April 20 until June 15, and then rallied 70 cents by July 11 with a seasonal high of $4.54.
Before getting too bullish regarding the December ’19 corn futures price, remember the U.S. corn ending stocks are expected to remain above 2 billion bushel for the third year in a row. Many farmers still have unpriced old crop corn that might limit their focus on pricing new crop bushels. Rather than thinking you could sell all your new crop bushels at the highest futures price possible, consider the importance of managing cash flow needs for your farm this next fall and winter. Also, understand basis trends in your area, futures price carry as well as the cost of storing bushels beyond harvest.
Establish now both a time frame and potential futures target prices for those new crop bushels. Using the previous four years as an example, you might expect the best December ’19 corn futures price to occur somewhere between $4.17 and $4.54 per bushel. In addition, the highest futures price will likely occur somewhere between May 24 and July 14, or a period of about 50 days. Other marketing strategies might include:
-Use a variety of marketing tools. Hedge-to-arrive contracts for bushels committed to delivery and generating cash flow needs. Futures hedges and/or put options to protect futures prices, but not committing bushels to delivery.
– Scale-in sales as futures prices are moving higher, making sales every 5 to 10 cents and in 5,000 bushels increments.
– Place market orders now with your merchandiser and/or commodity broker.
– Expect the highest futures price to occur intraday, thus the importance of market orders.
Steve Johnson is an Iowa State University Extension and Outreach farm management specialist. He can be reached at firstname.lastname@example.org.
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