Here at Rowland Farm Investments we have received several inquiries about the recent uptick in grain prices from our land owners and wanted to try and provide some information on what is happening in the markets. Some are saying that the recent surge in grain and oilseed prices has been driven in part by speculative fund-buying and while we are sure that is part of the reason, we feel the weaker dollar and uncertainty in South America has also
contributed to the selling opportunity.
Corn reached $4 a bushel last week and beans are now well above $10.00. These higher prices were not expected and caught most folks in the Ag community off guard. The good news is, it’s much better to be surprised by prices going higher than prices falling down. Now these prices are not record breakers, but compared with where the market was… and where it could be headed- these prices can offer many farmers and landowners and chance to be profitable in 2016!
The question is, how does this rally affect marketing this year’s crop? As you know we are very hesitant to make recommendations on what others should do with their crops, because just when you think you have the markets figured out…your WRONG, so we we’re not writing this to tell you what to do, but we will share with you what we are doing and hope this information helps you make wise marking decisions.
First let’s look at what we do know.
- Corn stocks- to-usage ratios are still looking bearish at around 14% which translates into a $3
.60 price range.
- Bean stocks-to-usage ratios are also bearish at around 12% which translates into an $8.50 price range.
- Plantings for corn and beans are way ahead or on track so far this spring, which usually translates into solid yields. So far the weather has been cooperating with the US planting season and without a major drought crops are poised to produce solid yields.
- Solid yields in 2016 could put carryover estimates at 2 billion bushels for corn and 600 million bushels for beans.
- Large amounts of the 2015 corn crop have been brought to market because of the higher prices in this spring rally and farmers need the cash to pay for this years inputs.
- This is one of the biggest spring price rallies in the last 35 years.
We think the overall fundamentals of the market have not changed and we plan on using this price rally to contract a larger portion of our 2016 crop. We feel prices will fall back soon and corn seems to already be headed down. Normally, we use info from the UDSA crop reports to contract ¼ of our crop by March 31 and contract another ¼ by July 31st. We then contract another ¼ in September and leave the final ¼ selling at harvest. This year we have already contract ½ of our expected crop and are thinking strongly about contracting another ¼ this week. It’s a gamble but we feel this rally may offer the best prices for the 2016/17 crop year and we don’t want to miss it.
Of course, the dollar could continue to weaken, the weather could impact yields and South America’s crops could come in smaller than expected. All these issues could allow for the rally to continue higher, but we are concerned those large stockpiles will bring prices back down in the end.
We think these prices are in the top 1/3 of what market prices will be this year, so to us there is a much better chance that prices will fall than go higher. We could be wrong. We may be kicking ourselves later this fall if corn is a $5 and beans are at $11, but we think that is unlikely and that there is a much better chance that corn is at $3 and beans $8 come November. Either way current prices are higher than our January budgets so we see contracting a large part of our crop now as a positive. Basically, the downside risk is a lot smaller than the upside and we believe marketing is all about managing risk.
As we mentioned above, this is only our opinion and we are sure not telling you what to do, but we are contracting a much higher percentage of our crop than during a normal year in an effort to take advantage of this rally. We wish you the best this spring and hope this info is useful to you.