Market Approaches $6 Corn

MT. JULIET, Tenn. (DTN) -- Old-crop corn prices are closing in on $6 per bushel for the first time since 2013, and DTN Lead Analyst Todd Hultman said there's little in the picture that could change the upward price trend.

The July futures contract, which is the benchmark reference price for old-crop corn supplies at this time of year, closed at a new high of $5.80 1/2 on Monday. The December futures contract, which better reflects the anticipated supply and demand picture after the next harvest, closed at $5.20 1/2, a level that is widely considered profitable for farmers but troublesome for end users like livestock feeders and ethanol plants.

The DTN National Corn Index, a measure of cash prices being paid today, closed at $5.78 on Friday evening, the most recent data point as of this publication. The resulting national average basis, also known as the difference between cash and futures price, is just 7 cents below the May futures contract. It's the strongest basis in eight years.

"This is totally upside down, just not the typical type of start to a season," Hultman said. He thinks the longer-term forecasts for a drier and warmer growing season are having a bigger influence on prices than the current cold snap, which is expected to affect northern and western areas of the Corn Belt this week.

You can find more on the cold forecast for this week here: https://www.dtnpf.com/….

On Monday afternoon, USDA reported that 8% of the corn crop has been planted, which is in line with the five-year average. He said it's too early to be concerned about planting pace, adding that farmers have shown they can plant a lot of acres in a short amount of time.

For more on the threats cold weather can pose to early planted crops, see https://www.dtnpf.com/….

Hultman said he recently looked at a map of DTN cash corn prices, searching for spot prices above $6. Usually, he'd expect to see them in Illinois and Indiana, where there's more competition among buyers.

"There's even a couple places in South Dakota where they have corn $6 and higher. That's really unusual," he said. "You know, we're hearing reports that ethanol plants are concerned about getting corn this summer, and some might just have seasonally shut down for a while."

Southwest Iowa Renewable Energy, an ethanol plant just south of Council Bluffs, Iowa, also had cash bids flirting with $6 all day Monday as well.

USDA estimates ending stocks for the 2020-21 season at 1.35 billion bushels, but Hultman said the market continues to trade as though the situation is much tighter.

"And I would say the way the market is trading, it also seems very confident the supply situation is tighter than that," he said. "As long as there's that type of tightness and we're not really expecting a large enough corn crop to add to supplies significantly at the fall harvest time, there is room for this old-crop price to keep inching higher."

To add to it: No one knows if China is done buying corn for the year yet. Hultman said futures prices on China's Dalian exchange, when converted from their currency to ours, is still well above $10 per bushel. "There's still room and possibility that China could come in for some more purchases before the current season's over."

The Brazilian corn crop is another factor. While it's still early, delays in soybean harvest slowed the pace of corn planting, and when the safrinha, or winter, corn crop is planted late, it tends to be more vulnerable to the dry season, Hultman said. "And we've seen a couple of weeks in a row where southern Brazil has been pretty light on the rain amounts. So that's going to continue to be watched very closely and goes hand in hand with our concerns up here."

And from a technical standpoint, there's little to challenge corn's upward trend. Noncommercial, or speculative, trading positions are heavily net long, and there's no indication that'll change.

Hultman believes the tight supply situations will encourage higher corn and soybeans plantings than what USDA estimated in its Prospective Plantings report at the end of March. Based on surveys, USDA said it expects farmers to sow 91.1 million acres of corn and 87.6 million acres of soybeans. For more, please read: https://www.dtnpf.com/….

"I just can't imagine people passing up this opportunity to plant more if they're able to," Hultman said.

For farmers that still have old-crop corn in the bin, Hultman advises feeding the rally, while saving some for later in the summer.

He said he's wary of some brokers' advice that farmers make new-crop sales for multiple years out.

"I think, in the old days, that's a good strategy, but in this situation, I think that could be a really dangerous situation of setting yourself up for a lot of margin money," Hultman said. "I would caution people to have a big respect for that bullish possibility this summer."

Joe Lardy, a research analyst with CHS Global Research, said farmers could ask 10 brokers about the best marketing strategies to use in this price environment, and they would probably get 10 different answers. In a previous interview with DTN, he said that everyone wants to sell at the market's highs, but it's important to start at the beginning by knowing your break-even price levels.

"If you just continue to make profitable sales, you're going to be farming for a really, really long time," he said. "You don't have to sell 100% of your crop at once. I really think it's good to have a staggered approach to your marketing plan."

Looking forward, Lardy also suggests farmers use a variety of marketing tools to sell their crop, such as cash contracts offered by their local grain buyer as well as futures and options.

"I think diversification is really essential to having a strong marketing plan," he said. "You don't want to be torpedoed by one market move or one particular action. There's so many great ways to market your crop that, hopefully, people are educating themselves and taking a look and being open to those different options."

He said one of the hardest things in 2012, when prices rallied to record prices, was the number of farmers who tried to hit the top of the market and narrowly missed.

"I hate seeing guys just have regret. You know, what would have been wrong with selling at $7.80? OK, so your neighbor tried for $8, and maybe your neighbor got $8," Lardy said. "That's one of those situations where you maybe sell a call."

Last fall, USDA released a report on farmers' preferred marketing tools, which found the vast majority are more comfortable using cash marketing contracts. You can read more here: https://www.dtnpf.com/….

Lardy said options can be a good tool in times like these to participate in price rallies, but "You have to have an understanding of them and they're not for everybody, but that is an interesting tool to once again diversify some of your marketing techniques."

Katie Dehlinger can be reached at katie.dehlinger@dtn.com

Follow her on Twitter at @KatieD_DTN

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