Merry Christmas! To say it’s been a wild & frustrating time in the markets since I last wrote would be a major understatement! When I left off in July, my seasonal projections were both pointing towards lower prices in a major way, but I was anticipating some sort of bullish change in the markets to begin sometime between August and early-October, based on my view that the crop was likely much smaller than USDA’s in-season’s estimates. By the time we got to early-August, corn prices had dropped enough that I was again buying calls against existing sales, in anticipation of a glorious upside reversal on USDA’s “re-surveyed” acreage to be announced in the AUG WASDE.
Well, as we are all too aware of at this point, USDA didn’t come through with a bullish S&D in August, but instead revealed supplies much larger than anticipated and the market went limit down! There was a moment in mid-OCT when I could have sold all those calls and recouped some premium, but instead I was stubbornly anchored to my convictions and let them all expire worthless in late-NOV. Thankfully I spent less on calls than I earned earlier in the growing season. Furthermore, this has been a great example of why I like to be long calls, rather than long futures or short options – from the outset I knew the worst-case outcome.
So where do I stand today? Reluctantly, I must admit that USDA was probably correct (as usual…), because I heard a lot of “much better than expected” yields. My personal yields were considerably better than expected, so therefore I still have more corn and beans to sell! During this time of year I mainly just use three tools in selling grain:
1) Seasonals: Like a good crescent wrench, knowing the seasonal tendencies of grain prices is always helpful.
2) Market Carry: When the market is offering a premium over your cost-to-carry, you need to be looking out to the deferred months for selling opportunities.
3) Target Orders: Because they always work!
I don’t worry quite as much about my cost of production when selling old-crop, because the market just doesn’t care at this point.
CORN MARKET OUTLOOK: My seasonal projection for JULY corn futures is shown in the following graph. The curves are generated by taking a weighted average of the past 25 years of futures data, where the weighting is partially based on correlation/similarity, and partially based on stocks-to-use ratio, which currently stands at 13.7%.
The projection curves suggest that, beyond a seasonal pullback in prices in the first week of January, there is a general tendency for rising prices until at least mid-May. My goal this year will be to have all of my old-crop corn priced by June 15th or earlier, with the next third of old-crop supplies sold by March 1st. Over the past 25 years, the average max gain in futures prices by March 1st was just over 7%, or about 28 cents from here, which is a bit more optimistic than the seasonal projections. With all this in mind, I am going to set my next target at $3.85 cash for MCH delivery, which is a bit more than 20-cents higher from here.
SOYBEAN MARKET OUTLOOK: The seasonal soybean market projection shows a general uptrend in price through May 1st, with an interim peak around the FEB WASDE (Feb 10th). The scale of the projection chart shows roughly 50-cents of upside between today and May 1st, which is very much in line with the average max gain in MCH futures by March 1st.
Since there’s more carry in the soybeans I will set my sales targets for JULY delivery. While a 50-cent gain seems audacious from here, the soybean market has often made a fool of me with exaggerated price moves that exceed my preconceived notions. Therefore, I’m going to go ahead with a $9.35 cash target that will require most of that upside to get hit, but plan to re-assess my assumptions later this winter.