Dry weather looks to be what caused overall crop conditions to take a hit, according to the latest USDA Crop Progress Report. USDA called 59% of the corn crop good to excellent, a 16-point drop.
“Up and down the Western Plains, from Kansas all the way North Dakota, everything took a hit,” says Bill Biedermann of AgMarket.Net.
Bran Basting of Advance Trading says as the Western Corn Belt saw the biggest decline in crop ratings, the next few weeks could be very telling when it comes to the production story for 2020.
“Will those regions get a change in the extremely warm temperatures, dryness that they've seen as they move closer to pollination,” asks Basting. “We're still a few weeks away yet even for the most advanced corn out in that region. However, you don't want to see a pattern of hot dry lock in so the markets can be watching to see if there is a change in the pattern moving into this last half of June.”
The latest NOAA weather model shows the Western Corn Belt getting significant rain, even as much as four inches of rain over the next seven days, starting off with measurable rainfall over the weekend.
Through the weekend. 3 day QPF NOAA. pic.twitter.com/7ZAwifvvGH— Allen Motew (@QTweather) June 19, 2020
Not all models show heavy rain falling over the next week, and Biedermann says if those rains continue to be absent, a weather market could present higher corn prices.
“I don't think we have a lot of weather premium built into the markets yet,” says Biedermann. “We might have 10 or 15 cents in the corn, but that'd be about it. I think the big question would be if we come in and they don't get that rain and if the longer term maps, which are mixed right now, but let's just say they're dry and hot, I think we'd be very explosive.”
If the rain forecasts come true, and parched areas get a drink, analysts know higher corn prices may not be in the cards this year. It was this time last year the corn market put in the high prices for the year, a risk both Biedermann and Basting think producers should keep in mind, especially with a large amount of old crop stocks still on the farm in places.
“I think at this point, a producer really needs to strongly consider getting control of those remaining old crop corn bushels, so they can turn their attention fully to 2020 crop,” says Basting. “In some cases, we've actually seen a modest rebound in 2021 December corn futures above $3.70, nearing $3.75. Obviously, we'd like to see that go higher. However, I think that with the old crop being held, it diverts attention from 2020 crop for sure, and any thoughts at all for 2021.”
Basting says that’s why he’s suggesting producers get control of remaining bushels by placing a floor underneath the market.
“By getting control, we mean getting the floor underneath those bushels either been liquidating and selling those bushels as the basis is favorable and going ahead and buying a cheap out of the money call option for September or doing some type of options trade. You'd put a floor under those old crop bushels, and then turn your attention to new crop.”
Biedermann agrees and says marketing old crop bushels is a sound strategy heading into the summer months.
“We've been buying September calls,” says Biedermann. “We've been taking advantage of basis bumps. The basis has actually strengthened up to some of the best levels we've seen. In North Dakota, we've been 40 to 55 [basis] under all year, and we've had some sales at 15 under. There's some good bumps out there, take advantage of that, get those bins cleaned up, get rid of that garbage and, and then just replace it with a cheap call, like Brian said, September's a great, a great option to go on.”