Weekly Market Update – May 17, 2019


What a difference a week makes! Monday morning felt like another punch in the face as everything was making new lows but then a miracle happened and corn was actually able to close higher. The market is finally taking note of the planting issues in the Midwest. Some of the models have as much as 15 inches in a lot of Iowa over the next 15 days. Whatever progress was made this week was stopped last night as big rains fell once again. Parts of the Dakotas and Nebraska have final plant date of May 25th and it looks like there is almost no chance of getting another window before then in some areas. Iowa’s final plant date is 5/31 and it looks very unlikely they will be able to get much more planted before then. I wrote last week that the market’s job is to make sure no decision is too easy. We have more of a buffer in the balance sheet than we thought earlier, but we still need to plant some corn and right now the market is trying to make sure people do their best to get it planted. If the weather remains this bad, the market may need to push prices to a level high enough to incentivize people to try to plant after the insurance date with reduced coverage. The market could not incentivize EVERYONE to take prevent plant, that is what this move is about.

With all that being said, we cannot sit on our hands here. Yes it is historically bad in the Midwest and yes we could go a lot higher BUT over the last six months the balance sheet has shifted drastically. We have added a lot of supply to the balance sheet and done damage to demand. Earlier in the year we had any one of about 15 things that could cause corn to rally and now we are down to one, rain. We are also coming off of several tough years and we are not sitting on cash reserves that will let us roll the dice and swing for the fences.

WE NEED TO USE THIS OPPORTUNITY TO COVER COSTS AND LOCK IN PROFIT!!!!

There is upside if this rain continues, but there is much more downside if we somehow get this crop planted. We cannot risk the downside, we need to manage risk this year. Most people have been ignoring the markets for the last few months and have gotten busy in the field. We need to make sure we take this opportunity the market is giving us! I hope in the fall we are all complaining about how cheap the $4 corn we have hedged is because that means all the rest of the corn we have grown is worth a lot more. If you all hate me in the fall for starting sales so cheap, it means we will probably all be around to farm next year. $4 futures should be close to $5 delivered corn at harvest and close to $5 FOB around Jan depending on your market.

Wheat is going to follow corn but does not have much of a story of its own. I would target $5 futures for stored bushels in hopes to turn that into $6 wheat in the fall. 

Soybeans do not need a big shift in acres. At the same time corn is trying to keep people planting beans are trying to keep Midwestern farmers from switching the acres over to beans. I suspect the government is going to be fairly quiet in details about any support program until after the planting window has closed in order to keep too much acreage from shifting to beans. They do not want to add to an already very burdensome balance sheet.

Cotton has also not been able to catch a bid. For the last few weeks cotton has had a very strong correlation with the Chinese equity markets and they have had increasingly worrying economic indicators. A stalling Chinese economy may look bad for cotton in the short run, but it will incentivize their leaders to come back to the table to get a trade deal done which will be better for cotton in the long run. It is too wet in a lot of cotton areas as Texas tries to finish planting.