Don Roose said the 2019 growing season has been just like every other year — it’s been unique.
From delayed planting to uncertainties about yield and acreage across the country, Roose said the key for producers is to make sure to stick to their guns.
“Every year is a unique year, and certainly this one is too,” said Roose, president of U.S. Commodities in West Des Moines. “You still have to respect your own situation and what is profitable for you.”
With planting in the rearview mirror, the focus for many producers is maintaining what’s in the ground and watching the markets — trying to find good opportunities to sell their product.
Roose said this would be a time where the market seasonally drifts lower overall. However, 2019 hasn’t been normal, and producers are still deciding if this is a contra-seasonal year.
“When we hit the August crop report, are we going to get thrown with an acre number that is lower than what we are trading right now, and could the yield be less as the combines roll?” he said. “Because of that, you have to respect the fact (it could go in either direction), and that means you have to do some risk management.”
The upcoming August crop report has the potential to change many perspectives on the market.
When the USDA originally released its acreage report June 28, markets were surprised by the numbers, as corn came in nearly 5 million acres above some expectations while soybeans were around 4.3 million acres below estimates.
Within minutes of the report’s release, the USDA announced it would be re-surveying farmers in 14 states to get updated numbers with an August release date. Many traders took the June numbers with a large grain of salt.
That is the reason the market may not accurately reflect the June acreage report, Roose said. Even if the updated numbers come back as expected, the market may have already priced in some of those figures.
“We are trading corn acres down 2-3 million, and we are trading the bean acres up or down 1 million acres,” Roose said. “It’s all over the place, which is why the market continues to be handcuffed.”
Chad Hart, Iowa State University Extension ag economist, said that while the markets knew the June numbers “didn’t tell the whole story,” they are still waiting for direction on where to go.
“We’ve priced in some, but if you look at the past few weeks, looking at the December corn market, we’ve bounced between $4.20 and $4.70,” he said. “This is a market that thinks it wants to run somewhere. It just doesn’t know where it wants to run.”
Hart said numerous factors outside of acreage could impact prices. Even with a lower acreage number in corn, much will hinge on the quality of the crop and yield projections. With a great production year, he said the $3.70 mark the markets were trading in early May may settle as the floor.
While he said getting down to those levels is “not very likely,” it is a good representation of the value of some current prices. With the market poised to move in either direction, Hart said this might be a good place to be for some producers.
“This is the middle ground, but it is good middle ground to have,” he said. “When I’m looking at December corn at $4.41, and cash is averaging $4.30 (in Iowa), what we are seeing is that the market is in a decent spot.
“You’ve got a price that is probably covering your production cost. Anytime you can lock in profitability, it’s a great thing.”
Roose has been eyeing a similar range, and while the prices could fluctuate in either direction, he said this is the “fat spot” for corn to sit, regardless of the numbers that come out in reports.
“Try to take advantage of some of the carry in the market,” Roose said. “With the advent of options, you can get yourself an insurance policy on a good percentage of your crop.
“You could buy $4.50 March corn puts and go to work and sell $3.90 corn puts below it, which should cover a lot of range to the downside. On the upside, you can sell $5.30 corn calls, so that gives you a lot of upside potential.”
For the soybean market, he said buying a $9.20-$9.40 put against an $8.40-$8.60 put covers most of the short-term window in the November contract, while eyeing $10-$10.20 calls above the market.
The ongoing trade dispute between the U.S. and China looms over the market. The market has traded headlines, both positive and negative, but Hart said producers can point to progress made with other countries, such as Japan and the European Union.
“We don’t know which way (China) is going to go,” he said. “You are seeing President Trump work on other trade deals while the China mess is going on. I think we should see positive developments in those areas first. That’s where I’m more optimistic on the demand side.”
Roose stressed the importance of farmers staying true to marketing strategies and not letting one year trip them up.
Keep an eye on 2020 and 2021 contracts as well, he said, as he expects supply to increase in those growing seasons due to normal U.S. cycles and increasing acreage in other countries including Argentina. Locking in profitable prices now may pay off nicely in those years, he said.