Are you bullish or bearish on new-crop corn prices? No matter which way you lean, the current futures price level near $5.60 – a price seen at least once every month since February – offers a reasonable profit margin.
Chad Hart, Iowa State University Extension economist and associate professor, says even with Revenue Protection insurance guaranteed at $5.65, getting more new-crop booked in that range should be a prudent.
“This market is ready to run, it just doesn’t know which direction,” Hart says. “The $5.60 price provides a good margin. It’s not earth shattering. And farmers have had the opportunity to lock in that margin the past five months.
“Some took advantage and some did not. That’s the beauty of this market. It has given people plenty of opportunities to lock in futures above $5.50. So while we’ve had lot of variability, it has been a good price level for us. It’s a good spot to be in.”
Hart’s take on “variability” references the December corn futures chart. It resembles heart beat readings on an oscilloscope. Up, down. Up, down. Up, down.
This month has seen prices at near $5.80 the first week, down to about $5.25 to end the second week and back to $5.70+ a few days later. December futures closed at $5.57 Friday.
At a typical 85% RP coverage, the $5.65 insurance price is lowered to about $4.80. And if your planting was severely delayed, lower yields will mean less revenue. More cash contracts, futures or options positions may be needed. “Some farmers have seen $7 corn, so they’re not as excited about making more sales at near $5.60,” Hart says. “But that certainly beats $5 – or lower if conditions generate a good crop.”
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Meanwhile, the June 27 USDA acreage report could trigger a downward slope for prices. Some trade forecasters are pegging corn planted acres at about 95 million. That’s down a little from 97.3 million projected in March. But others contend corn acres will be even lower, due to wet weather that has slowed planting nearly two months.
“From here on out, we’ve reached a point in June where growers take a yield hit by planting this late,” Hart says. “They also take a hit on the insurance planting date. In Iowa, for example, any corn planted after the May 31 planting date will see coverage insurance reduced by 1 percentage point a day.”
That, and not knowing which direction prices are headed, makes risk management even more important, he says.
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