Taking Advantage of a Corn Rally

Posted on 03/09/2017 10:22 AM

As I type this I can't help but think about the line "happy days are here again!" At the time of this writing corn is up 11, beans are up 23 and wheat is up 9. We are nearly 80 cents off the low set in beans and 25 cents off the low seen just days ago in corn. Record heat and dryness forecast into next week combined with a report from the USDA yesterday showing carryout below expectations in corn has brought buyers back to the table for now.

My phone is once again ringing off the hook with lots of folks wondering just how high this thing will go. To which I respond no one knows. Many times people think I'm being sarcastic when I say that, but I'm not it's the truth, no one knows where the market will go, in fact many times as soon as one assumes they know the market proves just how much knowledge on direction they're lacking.

As a result of this new found price bounce I thought we would discuss the psychology of a market move and how to take advantage when the getting gets good.

I was on maternity leave when the corn market took the big jump in June. Mr. Kolton Setzer was born early the morning of May 30th. The Friday before I left December corn was trading at $4.13, I took 3 weeks off to recover coming back to work Monday June 20th. The Friday before I came back to work December corn traded to $4.49. Last week corn traded all the way back down to $3.46. One could call this last month's trade absolutely ridiculous and I would agree with them.

When we hit that $3.46 at the tail end of last week I heard many analysts say it was just the beginning and that the market had a lot more downside risk. Perfect weather and bearish expectations ahead of the USDA report were the reasons given. It was at that point I knew a correction was likely waiting in the wings. You see as soon as everyone gets on the same side of the boat it flips, and flip we did.

Starting with yesterday's USDA numbers; many will tell you a 2 billion bushel carryout expected for new crop corn is not bullish and they're right. At first glance 2 billion bushels is more than adequate, double what trade considers "pipeline" minimum. However, when traders are expecting an additional 200 million bushels plus to be seen in USDA carryout figures that 2 billion suddenly becomes bullish.

The lack of a major increase in corn carryout came as meteorologists and traders alike were able to see forecasts for record setting heat show up with great certainty. While the market likes to assume the corn crop is made by the Fourth of July you know better than I that the last half of July and August is what confirms whether the crop will live up to the potential seen during pollination or become somewhat of a disappointment.

The fact that we lost nearly 200 million bushels of expected carryout coupled with the idea that we could lose the top end off from the yield has resulted in a quick move higher and barring a significant change in the forecast-ie the removal of heat-this market is poised to move even higher in the short-term.

I posted on Twitter just this morning, the market always overcorrects a correction of a correction and when it does it's called opportunity.

Now is the time to take advantage of this opportunity.

The swiftness of our upward move in the corn market caught many off guard, and of course after the bean market made every pricing expert in the world look foolish it's no doubt when prices started to rally many growers weren't going to get overly aggressive selling. Especially when they felt there was so much upside opportunity left on the table in early bean sales. I get it. However it is important to remember the two markets are in very different places.

Soybeans have a precarious market set up thanks to larger than expected Chinese demand and smaller than expected crops out of South America. The fact that there are limited suppliers in beans makes our crop that much more important. Being weeks away from what the trade views as the most critical time to production leaves a risk premium in place there as well.

In soybeans a 2 bushel cut in national yield would cut carryout in half, whereas a similar production cut of 4% in corn would still leave carryout at an adequate 1.5 billion bushels.

I believe the market will overcorrect its downside correction proving to be a fantastic chance to catch up on any marketing opportunities you may have missed, but it will be imperative for you to take advantage of them quickly when they do. Remember the scale sell approach we've talked about in the past and use them this week to lock in what gains you're able to capture on old crop. Also keep in mind what you have to move right at harvest, take a look at crop conditions in your local area and do not be afraid to lock in sales if you feel harvest space will be at a premium.

Keep time in mind when looking at which bushels to sell. Unsold old crop bushels or those on unpriced basis contracts need to go first. Then as mentioned look at what you will need to move at harvest. Take into consideration your cash flow needs for the New Year as well and don't be afraid to lock in movement on enough bushels to ensure you won't be forced to sell in January simply to pay some bills. If you feel still feel bullish once you make these sales keep in mind what inventory you have left unpriced and remember you're still long the market by that much and if you're still bullish after doing that don't be afraid to buy some call options, but remember to incorporate the cost of those into your marketing structure.

In the end the market is giving you a chance to capture some upside that many didn't believe existed just a few short days ago. The entire market structure hasn't shifted on its axis overnight; the underlying fundamentals remain the same for the most part even after a few adjustments. Use this move off lows and the subsequent move higher I'm expecting to get caught up. No, those levels aren't at market highs, but they are better than where we spent a good portion of this past year and much better than the pricing potential we could see if the heat dissipates and the bears regain control once again.

As always, don't hesitate to contact Pro Farmer or I if you have any questions, we are here to help.

You can find Angie on Twitter at @GoddessofGrain or email her.

The views, opinions and positions expressed by the author are theirs alone and do not necessarily reflect the views, opinions or positions of Pro Farmer.

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