By Jason Dubberke, Grain Market Development Leader
As of writing this article, the USDA March one grain stocks and prospective plantings report hasn’t come out yet, but we’ve already had plenty of volatility and opportunity, with certainly more to come. The bull-run from the middle of January into March, prior to the subsequent sell-off, was a seasonal anomaly that defied bearish prospects with the current surplus-supply of global stocks.
During that period, May 2018 CME corn futures went from $3.5675 on January 17th to a high of $3.9525 on March 13th, and are now trading around $3.73. Similarly, May 2018 CME soybean futures traded from a low of $9.55 on January 12th to a high of $10.825 on March 2nd, and are currently trading around $10.18. I’d also like to note in the month of March, December 2018 corn futures hit a marketing year high of $4.12, and November 2018 futures hit a marketing year high of $10.48.
Over the course of this surprise rally, we purchased a significant percentage of our annual corn and beans in a relatively short period of time – a good portion of that grain was purchased when producers’ firm offers hit. Hence, I think it can be argued that members have been well served this last run by implementing marketing plans outlaid with strategically placed firm offers; especially now that both old crop corn and soy markets have seen some 50 percent or more retracement.
This article was written just prior to the March 29th USDA report, but the report aside, there’s a lot to be optimistic about. The future global surplus stocks picture is starting to change with ever decreasing Argentine crop estimates, U.S. corn exports have recovered from being 20 percent behind USDA expectations back in January to roughly seven percent behind now, cattle on feed placements are up seven percent year to year and weekly ethanol production has been surpassing expectations with stocks drawdowns to boot. To top it off, we’re heading into spring when potentially wet weather and delayed planting can compound all these other variables that are currently working in our favor.
With that in mind, it’s time to re-evaluate and realign our marketing plans with new firm offers. Firm offers can be made, changed and canceled as many times as you’d like as long as it hasn’t hit. In addition, cash grain offers have no minimums and no fees and can be placed on both old and new crop grain. They can be utilized for grain sold to Key grain elevators, picked up off the farm and for direct shipment to end-users.
Ultimately, placing firm offers gives you the ability to capture the market given further strength and allows you to participate in the market during overnight trading hours. However, if you’d be more comfortable with a more secure approach, given the alternative possibility of better than expected acres and perfect planting weather, then protecting yourself with options is another good strategy. As of today, a $.10 cent, out of the money $3.85, May call can be purchased for a mere two and a half cents, which gives you some short-term coverage through April 20th. A short-dated, at the money $3.80, June call can protect you through May 25th; which essentially covers the planting window and if you want to cover the majority of the growing season, you can purchase $4.00 September calls for $.20 cents per bushel.
I’ll add that call options can be purchased through Key Cooperative not just exclusively for old crop cash grain, but can be utilized to protect new crop sales as well. Lastly, I encourage you to talk to your trusted risk advisor at Key Cooperative to formulate a marketing plan that’s tailored to you.