Corn bulls want to talk about disruptions in domestic movement due to the winter storm, along with those who are somehow still forecasting strong export interest in the coming weeks. The problem with this rhetoric isn't that there's just not enough to keep the market supported, especially with such ample global supplies and more heavy technical pressure from the funds.
The corn market is in the process of making fresh three-month lows and down close to 50¢ from it's mid-December highs. The strength in the U.S. dollar continues to make me a pessimist in regard to U.S. exports, while the recent setback in crude oil price has me nervous about ethanol production in the coming months. Net-net it's just hard to be a "demand bull" in this type of environment.
As I turn and look at the supply side of the equation, there's really nothing to get excited about either. The trade seems to think Brazil is going to plant a good-sized second corn crop and that U.S. producers might roll out a few more corn acres than previously expected simply because of the insurance play. There is some hope among the bulls, including myself, that if crude oil prices can find more stable footing and start to perhaps rally a bit, the bleed in corn futures might start to clot.
As a producer, I continue to believe those who are in areas with an abnormally strong basis should take advantage of this situation and pull the trigger on old-crop sales. You can still participate in a spring or early-summer rally by simply re-owning or buying the JUL15 calls, which don't expire until the end of June. Essentially this limits your downside risk on the corn you have in the bin to no more than what you pay for the calls (I suspect somewhere between $0.10 and $0.20 cents depending on what strike you and your advisor decide on). This also gives you upside potential in case there is something out there we don't see coming in the way of weather complications or production hiccups.
I'm afraid if you continue to hold the bushels and both flat-price and the basis deteriorate, it could be a double whammy. If producers start to aggressively move and sell more bushels as the bills for inputs and rents roll in, I suspect as soon as the elevators get their fill of supply they may start to back down basis. I'm also afraid if the ethanol plants start to feel more of the pain or in some areas of the country move to a "hot idle," the basis bids will also start to weaken. Those producers who are still holding old-crop bushels need to be considering all the moving parts and specifics that apply to your particular area and situation. Make sure you are talking with your advisor about best-of-practice ways to be limiting your remaining downside risk. CLICK HERE for my daily report...