Corn prices are talking a small step back after recently posting three week highs.The bulls continue to point to nearby weather hiccups in the way of too much moisture and temps that are well below normal. The concern is that lack of oxygen, shallow roots and fewer growing units will ultimately create a drag on longer-term yields.
The market added a bit of "risk-premium" and has been trying to push through the recent high end of the range. As a producer I took advantage of the recent run higher and have fully reduced old-crop flat-price exposure and sold a few more new-crop bushels. I'm also keeping a very close eye on the DEC18 prices as they trade around $4.10 per bushel. Not that I'm wildly bearish nearby,
I just hate the thought of having downside risk and exposure on my plate for three crop years, i.e. last years bushels, this years bushels and next years bushels. I'm also a bit worried about the basis in old-crop. I fear if prices take off and rally, end users and buyers of corn will simply widen out the basis as many are flush with supply. I'm also a bit concerned about the longer-term demand headlines for new-crop prices. Demand has been extremely strong to this point and has helped keep us afloat as we we've had to digest more than +2.0 billion bushels in ending stocks.
My concern moving forward is that the demand headlines could start to cool. In the export world, the Argentine producers have very few place to go with their recently harvested corn and it will soon start pouring into the marketplace. Right behind that will be bushels pouring in from the record setting Brazilian crop. I'm also thinking corn for ethanol could start running into some headline risk as margins start to tighten and export demand becomes much more uncertain. In other words if the demand headlines cool off a bit, the trade will have to heavily rely exclusively on a bullish supply side story. It's early in the game and that could certainly materialize as heavy rains are causing complications, but I just don't want to bet the farm on a sub-160 yield, at least not at this juncture.
I like to think of "mid-April to mid-August" as the main time period for a U.S. weather market. If that's the case, we are now into the second quarter of play and quickly approaching half-time without having much of lead. In fact I'm not sure the bulls have much of a lead at all. The bears are quick to point to the fact soil moistures have clearly been recharged and temps in the extend forecast look to be near normal, perhaps a bit cooler to the west and a hair warmer to the east.
The U.S. crop is now 84% planted which is just -1% behind out traditional pace. In fact only three states Colorado, Kansas and Pennsylvania are reporting they are behind by double digits.On the flip side, the big production states are all very close to on schedule. Hence I just don't see the USDA making a huge reduction to their U.S. yield estimate, at least not yet.
There are a couple of more rains in the forecast, but if it starts to dry out and warm up, the crop could quickly start to look better and the trade could jump back on the bearish bandwagon. Bottom-line, I can certainly understand the arguments and reason to be bullish, but I've reminded myself constantly that I have to focus on "managing my risk" rather than trying to predict the price. Remember, the old-crop JUL17 contract hasn't traded back above $4.00 since last-June. That's also the last time new-crop DEC17 traded above $4.05 per bushel.