Strong demand and harvest delays could increase selling chances.

USDA gave growers two bearish reports in September, and another could be coming Oct. 11, when the agency updates estimates for 2018 production, supply and demand. So, if you hadn’t looked at a price chart lately you might expect futures to be grinding towards harvest lows.

Only that’s not what’s happening. It now appears futures made harvest lows in mid-September when a fast start to harvest and increased production reported September 12 combined to pressure the market.

Since then the market withstood more bearish news on Sept. 28, when USDA raised its estimate of corn left over from the 2017 crop by 139 million bushels. If December futures can take out September highs at $3.6975, charts suggest a potential for rallies to the July high of $3.885 are possible.

 

The December chart shows potential to challenge July highs if futures can retake the $3.70 level.

With average basis levels running 40 to 45 cents under, that doesn’t seem like much. But it could be enough for many growers to come close to breaking even, especially if their yields were a little better than USDA projects.

But don’t be fooled by this somewhat more optimistic tone. It’s not much of a brass ring and it could be yanked away fairly quickly if history is a guide. So with many producers facing harvest delays, the first order of business is to use that downtime to get a handle on yields and costs to figure just where your break-even is. It might be closer than you think.

Most growers have forward priced some 2018 corn already. My research shows a third of growers have, with an average of around 40% hedged. Those who followed recommendations on Farm Futures Daily, for example, are 30% at a December equivalent price of around $4.155. Assuming on-farm storage and average production costs, a rally to that target of December $3.885 and carry of 24 cents from December to July would lock in revenues for a small profit.

December-July carry is still trading around 3.5 cents per bushel per month, tightening on the October rally.

Getting another 20 cents on the board is no small feat, especially with most of the crop out in the field. But rains could slow that harvest enough to provoke some buying by commercials trying to get the flow they need.

And even if this somewhat rosy scenario plays out, there’s no guarantee it has to continue. Most years, it doesn’t. Futures get a post-harvest bounce that fades by the time Halloween candy is gone. After that, futures tend to grind lower into spring.

 

The early harvest low made in September means the usual October rally in July corn could end sooner than normal.

There’s a chance the market could rally later in the winter and early spring. While corn has an advantage to soybeans currently on a profit per acre basis, both look like money losers. Rising interest rates could keep growers uneasy about expanding corn ground much. If yields finally revert to average in 2019 after six good years in a row, projected carryout could tighten again at the end of the 2019-2020 marketing year. That could provoke at least a little rally to buy acres and make the market more sensitive to growing season weather.

By: Bryce Knorr, Senior Editor of Farm Futures Magazine