Conditions and Supply Demand update – Special Report
AgMarket.Net is not making any changes to the S/D report right now. Today crop progress and conditions report came in nearly exact to our expectations.
We will note that right now, we are in the “good” column of the Supply Demand report. That means we do not see any chance of a yield greater than 167. We believe that over the up-coming weeks, we will get information that allows us to reduce the harvested acre percentage from the normal 92% of what is planted down to a more realistic ration. In 1993 that ratio fell to 86%. We do not believe it will be that bad this year due to extreme advances in technology (LGP equipment for one). USDA is currently conducting an acreage survey that will be released June 28. We believe that report will help assess the planted acreage but will still likely over estimate the actual planted acreage. We also believe the next revision to yield will be below the 166 USDA is using. That might come on the July 11 report. AgMarket will be conducting a special study that will observe ~130,000 acres in 6 states. If all goes well, this study will help identify the harvested acre number and early yield calculation.
So for now, we believe production is below the “good” column but probably not at the Avg column yet. Thus the market can start to trade sideways as traders start to hear “it’s all growing, looks pretty good, its green.” Dec corn might trade between $4.40-4.75 for the short term. Be sure to listen to our Video update later this week for a more accurate assessment. If the market gets some more factual and not just opinionated information about the harvested acre ratio and yield, then traders will start to believe numbers represented in the avg column and prices will need to move higher.
AgMarket.Net is very concerned about the demand side. Parent company JSA deals with commercial account end users and exporters. Adequate world supply in a very price competitive environment along with adverse US international trade policies are creating an open door for Ag Demand to find other suppliers. Thus getting the rationing we need in the good column is already occurring. Prices really do not need to go much higher unless we are slipping to the Avg column in this table. Additionally, we are concerned for risk that the US – China, US-Japan, US -EU, USMCA trade policies have not moved forward which is putting pressure on the word economy. A slow down in economic growth would be a problem for US Ag. Finally the risk of ASF will increase as the year advances. No one knows the risk of this virus advancing to the Americas but if it does, it is a major bearish event.
Corn producers should be 50% protected with a 420-430 floor and should have orders to get to 100% protected with 460 puts or some other strategy that accomplishes placing a floor under the market and keeping the upside open. Many will also roll the 420/430 puts up. We are printing the most simple strategy to give you guidance. Each farm is different and so we try to employ the strategy that best fits you. Talk to your AgMarket.Net consultant and get your orders in. We will keep the upside open as we believe the scope of the growing crop are still unknown. AgMarket.Net is hoping this study we will be doing will help us identify the potential crop size in 2019. If it is as bad as 1995 or 1993, then keeping the upside open will be very beneficial. As you can see by the revenue curve on the farm below, income will continue to move higher as prices rally or until we decide to price the inventory with a hedge. If we lock in the price at $5.50 futures, our income then jumps to $905/a vs $722 we have locked in. However, if the market fails before we sell, we have income protected and our stress has been eliminated.
Current weather forecast looks adverse. Cold and wet conditions for the next 15 days. Some are then calling for a transition to hot and dry. Some are calling for more normal conditions. Either way, this year’s crop is experiencing the largest geographic challenge ever observed with stacks and genetics we have never seen tested. Thus it is easy to get bullish when you look at the forecast and yet the potential these genetics could temper the adversity of weather. Most statisticians continue to argue the yield will not fall much. Most of whom have not farmed or experienced and extreme situation. So all we can do is wait and see. AgMarket.Net will start with our intense study that we have referred to in order to bring you the best information. We will then move toward farmer surveys that we will need your help to accomplish.
In the meantime, we will generate these reports, weekly videos if appropriate and of course our preferred line of communication – daily phone calls.
Bill Biedermann
AgMarket.Net
815-893-7443 o
815-404-1917 c
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