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This Week’s Market Forecast from Minnesota Jon…

Jon Scheve
Jon Scheve

Market Commentary for 4/15/16

 

Corn

With good weather forecasted for the week, planting started across the Midwest. I anticipate a high percent of corn acres will be planted by Monday.  Early planting like this is not bullish because it usually leads to higher yield potential.

 

Beans

Beans continue to rally due to inflation worries in the macro economy.  Strength of the Brazilian Real vs the Dollar may lead to better export potential from the U.S.  Also, early corn planting indicates that not as many corn acres will be switched to beans as estimated last week.

 

Fundamentally this bean rally seems a bit overdone. Technically, the market could continue to rally. However, some say this rally put a weather premium back into the market. Beans may be in for a wild ride, prices could range from $7.50 to $11.00 depending acres and yields this summer.

 

Predictions

Over the last few weeks there have been countless corn and soybean predictions.  Corn estimates ranging from less than $3 to over $6 causes sensational headlines, but doesn’t help producers make decisions.  Until harvest, weather will mostly be driving the market.  It’s important to keep in mind that opportunities will become available for farmers, but only those with a plan will capture them.

 

Market Action

On Wednesday a long standing order I had placed was filled at 9.60 on the Nov soybeans, putting me at 60% priced for my 2016 production.

 

Position

Months ago my goal was to be 66% priced by the start of planting for corn.  Right now I am 30% covered with futures and 40% covered through sold calls.  Selling calls doesn’t provide downside protection, but I do collect a premium upfront.  Several of these trades have expired worthless recently, but each time the unsold bushels were replaced with another sold call position, with more premium in my pocket.
With so many open options, what is my real position?  

This is hard to answer, because no one know where the market will be months from now.  A drought may push prices higher.  Great weather may push prices lower.  My position varies based upon future prices, but protections are in place so I won’t hit the bottom price, but I won’t be hitting the top either.

 

The table below shows potential Dec futures prices at Thanksgiving.  I’ve included the % of my position sold at those prices and the average price sold at each.  I also included “100% priced” which means taking the unpriced bushels at each point and selling at that price to understand overall position.

 

 

IF – Dec Futures % Sold Price If 100% priced
$3.00 50% 3.95 3.50
$3.20 50% 4.05 3.65
$3.40 50% 4.10 3.75
$3.60 50% 4.15 3.90
$3.80 55% 4.19 4.05
$4.00 60% 4.23 4.15
$4.20 60% 4.28 4.25
$4.40 65% 4.32 4.35
$4.60 65% 4.33 4.40
$4.80 70% 4.35 4.45
$5.00 70% 4.35 4.50

 

What is the take away from this?

Having a plan in place is more important than the prices I pick.  At $4 my average sold price is $4.23 on what I have sold, but only drops 20 cents if the market falls a $1/bu. On the flip side, my price doesn’t increase much if the market rallies to $5.

 

It’s important to note, this plan was slow to develop. I didn’t just put it on in the last month. It includes 15 different options trades and 9 futures trades.  While most of the trades happened in the last 8 months, they go as far back as 3/3/13.

 

It may take time to put these trades together, but it’s worth it to minimize risk for our farm operation.  I feel comfortable with my positions knowing what I know now.  While I won’t get to take advantage of $5 corn on 100% of my corn if prices go up in the future, I’m relieved that I won’t have to settle for $3 corn if the market goes down.

 

More Market News…

CME Group

Today’s Markets
Commodity Yesterday's Close Today's End
Wheat 3.11 Bu $ Bu $2.95
Corn $3.00 Bu $2.76
Oats $2.00 Bu $2.00 Bu
Beans $9.57 Bu $ Bu $9.48
Milo $3.12 Bu $3.12 Bu
Fescue- We will not be buy fescue for 2016
*Please Call for Current Market Conditions.