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Corn or Soybeans in 2016?

After reading one of the dozen or more reports on next year’s crop production a thought occurred to me. Do farmers still choose what they will plant from year to year? Now that estimates pop up daily on acreage for 2016/2017 corn and soybeans, are farmers controlling what they will plant?

Of course the answer is yes. But over the next month or two, as forecasters and analysts try to guess where prices will be in a year from now compared to inputs at planting, the estimates will bounce back and forth. My conclusion is estimates make good print.

Especially over the past couple of years, it has become painfully obvious that farmers need to become better at marketing their crops, but when it comes to what they plant, it is almost the exact opposite side of the coin. The costs of inputs and expenses are often known down to the penny. As soon as combines begin taking in old crop, the data is being collected and crunched, comparing costs with possible production settings to the coming year.

Before combines are washed up and put away, farmers are being visited by seed and input sales people, as it happened this past year before crops were marketed.

I’m simply trying to point out that now, mid-January, for many US farmers jumping back and forth over the fence of what should or shouldn’t be planted is good for fill on reports, but probably far from realistic. When it is estimated that 70 plus percent of old crop corn needs to be sold, estimated what will be planted for the coming year is putting the cart before the horse.

Review Last Months Recommendation – Buying Corn

At the end of December, I suggested buying calls or selling puts against short corn futures or taking profits on part of short futures positions. Now that Argentine grain is moving in the pipeline and soon US farmers will move more old crop grain for cash flow needs, I suggest:

  1. Selling Futures.
  2. Selling Calls
  3. Liquidating Short Puts

DECEMBER 2016 GLOBEX CORN AT 1:00PM JAN 2, 2016

December corn, if it moves up to the overhead line (green) around $3.93 will be about an 18 cent move off the low. If holding old crop, take advantage of the front month basis in most areas of the Midwest that is tighter than back months. Do not buy calls to replace cash sales; instead sell calls. For instance; July 2016 corn $3.80 calls as I write are near 20 cents with July at $3.77. To breakeven July futures would need to be above $3.97.

Chart from eSignal Interactive

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