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Hope springs eternal for corn prices

By Staff | Mar 20, 2020

The global impact of the corona virus devastated most commodity markets this winter. However, the spring months are typically the timeframe when corn futures prices rally with the uncertainty for worldwide corn production. That is because nearly 85 percent of the world’s feed grains are produced in the northern hemisphere. The U.S. is the largest producer of corn and most soils in the Corn Belt are extremely wet with the likelihood of delayed planting.

As a result, expect short-covering rallies as speculators buy back their “short futures” contracts and new speculative money goes “long corn futures.” Evidence of these short-covering rallies for December corn futures over the past 5 years include:

  • 2019 – December corn posted a low on 5/13, then rallied 90 cents until 6/17.
  • 2018 – December corn posted a low on 4/20, then rallied 27 cents until 5/24
  • 2017 – December corn posted a low on 4/21, then increased 38 cents until 7/11
  • 2016 – December corn posted a low on 4/25, then rallied 70 cents until 6/17
  • 2015 – December corn went 20 cents lower from 4/20 until 6/15, then increased 70 cents by 7/11.

Selling into weather-scare rallies during the spring months has worked well for marketing corn in each of these years. This strategy is easier said than done as market analysts become bullish with the rapid rise in futures prices seems justified and planting uncertainty appears widespread. A producer should use caution when making marketing decisions based only on here say or unsubstantiated market chatter. The weather-scare rallies during the spring months typically provide very good opportunities to sell both old and new-crop corn bushels. Before the potential markets rally this spring, consider reasonable futures price objectives for marketing your corn bushels.

The July ’20 corn futures contract traded at a life-of-contract low of $3.63 per bushel in mid-March. Expect a potential retracement of at last 50 percent of the winter high of $4.04 1/2 and this price low. That futures price objective would be around $3.84 per bushel. Consider scale-in incremental sales when this price is reached with stiff technical resistance at $3.95 per bushel.

The December ’20 corn futures contract traded at a life-of-contract low near $3.68 per bushel in mid-March. The crop insurance projected price determined in the month of February was $3.88 per bushel. This price helps determine the minimum revenue guarantee for your Revenue Protection crop insurance coverage. Thus, a greater than 20-cent futures price rally would be above this guarantee and hopefully provide a comfort level in generating fall and winter cash flow needs. Expect the December ’20 corn futures price highs of $4.11 1/2 per bushel in October and $4.04 3/4 in January to provide stiff overhead technical resistance during a spring rally.

Plan now for corn futures price volatility and consider time, futures and cash price objectives as a part of your marketing plan. Market discipline will be critical to make necessary sales and a written plan is recommended. Expect corn basis to remain extremely strong into the early summer months. However, once confirmation of a potentially large new crop is confirmed, this basis will weaken quickly and likely return to more normal basis by harvest.

Consider preparing those written marketing plans now prior to corn futures price volatility in order to provide market discipline. Blank old and new crop marketing plans can be obtained in the Marketing Tools Workbook updated annually on the Iowa Commodity Challenge web site: tinyurl.com/iacrops

Steve Johnson is an Iowa State University Extension and Outreach farm management specialist. He can be reached at sdjohns@iastate.edu.

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