It feels like we could be nearing another market shift as we approach the August 12th USDA crop report. This report, in particular, is unique this year as it will finally reflect the prevent plant acres. Most are in a state of optimism with ideas of 7 to 8 million or more prevent plant corn acres and upwards of 20 million across all crops grown in the US. This factor, in particular, has been the most highly scrutinized as it could be the most impactful one way or another, but I think it’s important to look at the entire big picture. Here are some additional facts and truths to consider when deciding to clean up old crop or not, and dabble into new crop.
- First and foremost, cash and new crop corn are still at or near $4, which has been an extremely coveted value for the better part of the last six years. It’s also easier to purchase options and manage risk when we’re already above water.
- We’ve been in a prolonged trade war with China, and there’s no end in sight. As of this writing, US and China negotiators are actually getting together, but the POTUS is already suggesting that China will most likely wait until after the next election to make a deal. Trump has clearly indicated to China that the United States is going to get a fair long-term deal or not accept one at all, which despite hemorrhaging jobs, gives China a reason to try and wait-out Trumps presidency.
- The US ethanol industry has been a major contributor to the historically firm cash markets we’ve experienced as of late but the industry is starting to suffer. Now the S. ethanol reached 1.1 million barrels a day back in June which is the highest on record but margins are the lowest they have been since 2015. This situation is being exacerbated by the waivers that the refineries are receiving and the sheer lack of producer movement we’ve seen this marketing year.
- China’s pig herd has been devastated by African Swine Fever and according to Rabobank, the herd could be cut in half again by the end of 2019 with no end in sight. The bank said China’s herd, by far the world’s biggest, was already estimated to have shrunk by 40% from a year ago – well above Chinese official estimates which have ranged from 15% to 26%. That’s a lot of corn and meal demand going off-line!!
- We’ve had a historically late start to planting but the weather in much of the Corn Belt has not been threatening to the maturation of the crop, which has analysts inching up their yield estimates from out of the basement. The July 29th crop conditions improvement is further proof.
With all this in consideration, I feel we should continue to clean up old crop corn and lay off some new crop as well. If you’re more optimistic, then let’s put in some strategically placed offers or purchase some calls against cash sales. I really like the option strategy in this environment because we can purchase calls and still maintain a profitable minimum price.
Please reach out to your local Key Cooperative grain team to answer questions and implement a marketing plan!