When the perils of lower corn prices continue to pierce your checkbook, the natural reaction is to assume that doom and gloom will reign supreme. Unfortunately, the outlook for doom and gloom prices may continue into early harvest as the abundant old crop corn supplies come to town, filling grain elevators.
With a likely early harvest this year, there will not be much time to funnel that abundant old crop corn at the elevator away in time to make room for the oncoming harvest supply. The reality is that your basis will likely stay wide and your local cash price will stay low for a few more weeks.
However, seasonally, corn futures historically put in the harvest price low during the last week of September. While it does not mean that corn futures prices will then do an about face and rally, it will more likely mean that a low is in place, and that corn futures prices will start a very slow grind higher. The question then becomes for those who sell cash corn during this time, “Should you re-own that corn that you just sold to the elevator on paper?” I feel the answer is yes. It would be prudent to investigate buying a corn call option that lasts well into 2019.
Why have optimism for higher corn prices down the road in light of the recent grain sell off and fear of trade wars? Because of the historically low stocks-to-use ratio for the world corn ending stocks. In the chart, you can see the difference between the 2017-08 global stocks-to-use ratio (in dark blue) versus the 2018-19 “lowest ever” stocks-to-use ratio in orange. That is a significant and meaningful difference for the future. It means that demand for corn around the world is voracious, and continues to grow while using up current supplies.
While this news is definitely welcomed and supportive, keep in mind that even though the global ending stocks-to-use ratio is tight, this will likely lead to more corn acres being planted in the United States in spring 2019.
More acres in 2019 means more corn production, and the tight stocks-to-use ratio will likely be alleviated. And with the market already aware of the possibility of more U.S. corn acres to be planted in 2019, the reality is that, unless South America has a drought for their upcoming growing season, corn futures price will continue to trade in the same price range that it has for the past four years, with new crop December futures struggling to trade much higher than $4.25 a bushel.
What does this mean to you? It means that most likely this upcoming winter and even into next summer, corn futures price will rally. This will also be an opportunity to forward contract new crop and plug away on old crop sales. Be ready, be mindful and be sure to pull the trigger on those cash sales when the opportunities arise.
Editor’s note: Naomi Blohm is a marketing advisor with the Stewart-Peterson Inc. and she is a regular contributor to the Iowa Public Television series “Market to Market.” She can be reached at [email protected].
