Corn supply and use in 2013/14
The projections for 2013/14 supply and demand certainly point to much lower prices ahead. And yet, very similar forecasts were made for the 2012/13 marketing year at this time last May. Because those forecasts were substantially changed due to the 2012 drought, it makes discussing the prospects for much lower prices this next year reminiscent to the boy who cried wolf one to many times. It is possible that flood, drought, or some other weather calamity could substantially lower national yields again this year. However, the likelihood of such a weather event covering the entire Corn Belt again this year is rather low – and the cost of being wrong in assuming the ending stocks won’t actually double or triple next year is astoundingly high. Further, growing world supplies would absorb a production shortfall in the U.S. this year, unlike last year.
So, what should corn producers do in developing their 2013/14 corn marketing plan in light of these projections? December 2013 corn futures have been in a downtrend since last September, and if rapid planting progress occurs this week, new crop futures could continue to work lower. At this point, producers need to estimate their cost of production as accurately as possible and be willing to make some incremental sales of their insured bushels on small rallies. Whether the late planting progress rally continues to build in the next two weeks or subsides as the crop gets planted, it is likely that there will be some weather event in the June/July timeframe (especially during pollination) that will provide some strength to prices and open an opportunity for pricing new crop corn. Thus, it probably isn’t necessary to be in a tremendous hurry to price new crop bushels in the next couple of weeks, but it is important to adjust price expectations and be ready and willing to do so during the first half of the growing season. For post harvest marketing, growers may want to consider storage hedges as there is about a $0.25/bu premium of July 2014 corn futures over December 2013. That carry, combined with seasonal basis appreciation, could provide a nice return to storage this year. With the very tight stocks the last couple of years creating an inverse carrying charge in the market, producers have had less incentive to store grain. However, with a return to a 2 billion bushel carryout this next marketing year, the market will likely return to a more normal positive carrying charge.
Source: Darrell Mark
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