With crisis in Ukraine, China’s stockpiling of corn and potential for good U.S. growing conditions, corn prices could go virtually any direction at about any time. And with December 2014 futures prices above $4.80 per bushel, getting a few bushels priced now could provide protection against the threat of prices $1 or more below that this fall, says Ed Usset, University of Minnesota grain marketing economist.
“I am not predicting or hoping for lower prices, but farmers need to consider the scenario where harvest prices for corn are close to $3.50 and soybeans are $10 per bushel or less.” Usset says. “A few early sales are your only good defense against this bearish scenario.”
He adds that new-crop corn quotes are below production costs for many producers. “Farmers are faced with a tough decision, ‘should I price new crop corn today, knowing that I will lock-in a modest loss?’ It makes sense if your goal is to fight off larger losses possible with lower prices next fall.”
USDA’s World Agricultural Supply and Demand Estimates (WASDE) report on March 10 saw U.S. corn ending stocks lowered 25 million bushels and the average price is narrowed to $4.25-4.75. Internationally, higher corn production is being seen in China.
“At the same time, China continues to reject corn shipments from the U.S. containing an unapproved GMO trait, but that corn appears to be finding a home quickly from other buyers around the world,” reports Farm Futures, sister publication to Corn+Soybean Digest.
“China, in the meantime, continues to stockpile corn to support prices for its own farmers, giving feedmills incentives to keep pushing for increases in import quotas.”
Farm Futures adds that there remains uncertainty whether farmers in Ukraine will be able to seed this year's crop due to problems with financing. “Rallies on international disputes rarely result in a sustained change to supply and demand fundamentals,” it reports. “But the bullish tone to the (U.S. futures) market should be respected.
“Keep selling old-crop inventory and use the rally to make initial sales of 2014 production. Buying 85% of trend-adjusted yield for Revenue Protection and participating in the new Agriculture Risk Coverage program should go a long ways towards guaranteeing a profit in the year ahead.”
Usset says that with El Niño in the forecast and the chance for a good growing season in the Corn Belt, price risk management is needed. “With prices this close to breakeven levels, I favor the simplest and lowest cost pricing tools,” he says, “straight futures hedges, hedge-to-arrive contracts and forward contracts.”