CFGAG News and Views     Vol. 101  December 1, 2017


"Recalculating Profit Goals"




With harvest all but finished in most areas, most folks in this business continue to marvel at how high  corn yields were in many parts of the belt, and even with little rain in August and early September how well beans did in spite of the lack of moisture in many areas. We were extremely surprised here in Northern Indiana at how well corn did in spite of late planting, replanting, and below normal rainfall for the months of June, July, AND August. When we get such a surprise, we try to look back and learn from our miscalculations to make better decisions in the future. Here is our list, in order of importance in our view, as to what turned out to be much better production than expected last summer:


1) Temperatures, both daytime and nighttime were mild, if not on the cool side during key development times
2) Later than normal frost, and plenty of heat late season to get late planted crops to the finish line


3) Farmers are, and continue to be resilient in their efforts to produce as much as possible despite many challenges


4) Corn and bean genetics continue to improve, along with seed treatments and disease control


5) Precision farming, planting, fertilization, and placement utilization continue to accelerate in use


6) More irrigation and better use of water along with conservation methods continue to offset dry spells more effectively




With more bushels than expected in many areas, we now look to our spreadsheets to see if we should be adjusting our sales targets. With the corn market rallying a dime last week off the lows, we find July futures just under $3.75. For our farm here in Indiana, a move to $3.85- $3.90 will get some sales on the books as long as basis is reasonable. If not, we will do some HTA contracts, and wait on the basis. Is that futures target reasonable? Very possible now as funds are still short a large amount of corn contracts, and any reason for them to cover could get us there very quickly. Make sure you have your target price in mind and orders in! There are many reasons corn could rally a bit going into year end, and we list them here:




1) Funds taking profits before year end


2) South American weather, specifically Argentina and Southern Brazil are drier than desired at this time


3) Re-balancing of Index funds (long only funds) buying what is relatively cheap, and selling what has rallied the past year 


4) Demand remains strong, and China has been rumored to be buying US corn, it is price competitive now .




For soybeans, we would look to sell old crop beans on any rally in the March contract to the $10.10-10.20 area and own March calls to replace if bullish. Grain options are very reasonably priced now as volatility is quite low. Making cash sales on good basis and replacing with calls reduces risk, and with the increase in bean acres in Brazil, along with more "carry out" bushels from their last crop, we cannot underestimate the downside risk going forward. There is some concern that USDA may have to reduce bean export projections, and raise US carry out in future supply/demand reports. Make sure you are watching for basis opportunities to move grain and reduce risk. If current ratios between corn and beans continue, we may see even more beans planted next year in the US as well. No one knows for sure, but the risk is there, and we prefer to start reducing ours on corn and beans as soon as those levels are reached. Simply put, they are prices that make us profitable, and we will not ignore them!




For new crop, we will start sales on December corn in the 3.95-4.00 area, and for November beans, anything over 10.10 will get us started. We want to get some on the books early, and add to those sales on rallies to make sure we have profitable prices locked in, and with volatility on options so low, we may consider defending those sales by buying March calls in both corn and beans, looking to cover upside risk until South American crops are further along. Make sure you know where your "in the green" price is, as it could be very different from ours. If you need assistance with a spread sheet, call us as there are plenty of options available to help zero in on that price that makes your checkbook balance.




We are still working a bull spread in corn, owning the March now while short the December 18 contract against it. We are still looking for that spread to narrow as farmer selling pressure declines, while demand stays strong and funds are possible buyers to cover shorts. We will watch for a 10 cent move in to either liquidate the spread, or simply selling the March side to leave us hedged at over $4.00 December futures. Make sure you keep in touch, as Holiday trade can be very erratic with lower volume, sometimes big orders move price a lot. Don't pass up an opportunity by not having orders in, or make sure we know what you are looking for so we can alert you to some sudden move.


In conclusion, I am calling 2017 the "miracle year" as what was produced far exceeded my expectations. While very frustrated that more corn was not sold ahead of harvest, there are many more bushels to sell than expected. Therefore, target prices are lower, and really are not far away. With large US and World carry out levels looking at us, making at least some sales at these levels seems quite reasonable, and with cheap options, making sure sales are made and replaced with options really looks attractive to me. Consider all the risks you currently carry, when cash flow will be needed, and lets plan on rewarding a rally with a complete plan to move grain on good basis. The good news is that corn basis at least has improved quite nicely in many areas. This may not be the case after year end, so make sure you have a handle on this. A 10 cent basis bump on 200 bushel corn is $20 an acre. As we approach the Christmas Holiday, and the end of another year. we also take time to thank each of you for your business and your friendship, and count our blessings that we can work and prosper in freedom and comfort. Merry Christmas and have a great New Year!


Dates to Remember this month

  • Crop Progress and Conditions every Monday at 3:00 central time
  • Export Inspections every Monday at 10:00 central
  • Export Sales and Shipments every Thursday at 7:30 am
  • December  12th:  Supply/Demand and Crop Production
  • December 22nd:   Cattle on Feed
  • December  22nd:   January Options Expire