The last article I wrote talked about market volatility, or lack thereof, I should say. The market continues to be stuck in the same funk as it tries to work through a burdensome stockpile of grain. Domestic margins have improved slightly, but their buying habits have remained the same. They are buying the front end as needed and are being conservative about purchasing on the back end. They’ve got a decent level of comfort as they don’t have to compete much with the export channel. An export program would help to alleviate some of the pressure we are experiencing domestically. Demand for U.S. grains is having a tough time gaining any traction. The strong dollar has continued to be a thorn in the side of the grain markets as other countries are the cheaper choice. We’ve seen some sporadic corn export sales announcements but not enough to cause concern for a supply shortage.
With demand being held in check, it presents some areas of concern as we head through spring and into the summer months. There’s been a tendency to see a glut of corn move off the farm during the months of January, February, and March. Some corn has moved off the farm, but it’s not as much as you’d think would have moved coming off of a harvest where we saw record production. This is due, in large part, to grain prices falling below the cost of production. I’ve talked to a number of farmers who are just now moving their first kernels since harvest. They are using various ways to get some corn moved while leaving the opportunity to capitalize on a price spike open. There is still a lot of grain that’s taking up storage space on the farm that will need to find a place to go to ensure the ability to handle the next crop. With the current demand picture, that will be no easy task. The next crop, according to the news out of the USDA Ag Outlook Forum won’t be any too small either. At this point, the size of next year’s corn crop is estimated to surpass the size of the 2015-2016 crop and the carryout is expected to be near 2 billion bushels, which could continue to cause issues for prices.
It’s a pretty common thought in the country to wait and see what happens this spring before pricing any more grain. At this point in the ballgame, I can’t say I blame anyone. As of this writing, May corn futures are a freckle above contract lows and May bean futures are near a six-month long support shelf that could signal additional downside if broken through. So, the time to price grain isn’t necessarily ideal. The hanger that most are hanging their hat of hope on is the large fund short position in the market. A weather related event that would cause concern for planting delays or productions implications could spook the funds and give everyone the rally that had been hoped for.
I would urge you to have a plan in place as to where your targets are and how much you’re willing to sell so you’re prepared to make a move if the market presents an opportunity as we head through spring. By taking into consideration the current supply and demand situation, it’s challenging to make a case to justify that opportunities will be long-lived. So, please be prepared to act if it makes sense for your operation!
Have a safe spring!