Marketing Your Corn – 2010
By Mark Soderberg, Archer Financial Services

As of my last article, in mid July-10, my recommended sales level for the 2009 corn crop was at 85%, with an average price of $4.58 basis the Sept-10 futures.  At that time I had advised clients to sell the remaining 15% when Sept-10 futures reached $4.05.  This level was hit in early Aug-10 bringing sales for the 2009 crop to 100% at an average price of $4.50 basis the Sept-10 contract.  In mid July-10, my recommended sales level for the 2010 crop was 25% at an average price of $4.10 basis the Dec-10 contract.  At that point I had also advised clients to make additional sales of 5% at $4.15, 10% at $4.25 and $4.45, and 15% at $4.65, all basis the Dec-10 contracts.  To date the next two targets have been hit bringing 2010 sales to 40% at an average price of $4.14 basis the Dec-10 contract.  At this point, I think it would be a good time to reexamine the fundamental factors which are driving corn prices, review our marketing plan going forward for the 2010 crop and begin focusing on a marketing plan for the 2011 crop.  

In my last article I stated that corn prices were likely to stay in a range of $4.50 to $4.75 on the high side and $3.25 to $3.50 on the downside with the key determinant being weather.  In the past 4 weeks weather has generally been favorable as crop conditions have held up reasonably well.  At present 71% of the crop is rated in good or excellent condition, down slightly from the 73% four weeks ago.  Both figures are above the historical averages.  Since mid July-10 the range on Dec-10 corn has been $3.76 to $4.39.  As of this writing prices are hovering just above the $4.00 level awaiting the August USDA report.  Since my last article there has not been a USDA report.  Therefore, there has been no changes to the US balance sheet.  Ending stocks for the 2009/10 MY remain at 1.478 bil. bu. and the 2010/11 ending stocks are forecasted at 1.373 bil. bu.  The major fundamental feature affecting corn prices in the past 4 weeks has been the devasting drought that continues to grip Eastern Europe and Russia.  As a result, wheat production estimates in this area of the world continue to be slashed.  In the July USDA report, world wheat production for the 2010/11 MY was cut 7.5 mmt to 661 mmt, which compares to 680 mmt last year.  The markets expectations are for production to be slashed another 10 – 20 mmt in the August report.  As a result of the production short-fall the Russian government has banned the export of grains effective from Aug 15th thru the end of the year.  As countries scramble to secure wheat from alternative sources, wheat prices have surged.  At the moment Dec-10 Chicago wheat is roughly $2.50 per bu. above the June-10 lows.  Also supporting corn prices in recent weeks has been the massive amount of buying by speculative traders.  In the past 5 weeks the NC traders and index funds have bought just over 200,000 contracts of corn.  Their combined long positions account for just over 41% of the open interest, which is the highest figure since mid January-10.                

So once again we are at the point where we must ask "where do prices go from here?"  Heading into tomorrows USDA report expectations are for corn production to be increased roughly 40 mil. bu. from the July-10 estimate of 13.245 bil. bu.  The average yield in July-10 was 163.5 bpa, which is expected to be increased about .5 bpa.  At the moment 52% of the crop is in the dough stage compared to 23% last year and the 5 year average of 40%.  Already 14% of the crop is dented compared to 5% last year with the 5 year average at 11%.  Given the advanced stage of this year's crop, I believe it will be difficult to see a significant drop from the current yield forecast.  In fact given what we know at the moment, I suspect the final US average yield will be somewhere between 165 and 168 bpa, leaving production between 13.366 and 13.6 bil. bu.  In addition to the supply uncertainties, the demand forecasts will be closely monitored.  Despite the expectations for slightly higher production, ending stocks for the 2010/11 MY are expected to decline 66 mil. bu. to 1.307 bil. bu.  As a result of the reduced volume of feed wheat from the Black Sea region, corn export are expected to be increased.  Some estimate exports could be raised up to 200 mil. bu. from the USDA's current estimate of 1.95 bil. bu.  I suspect the market will continue to be very sensitive to weather, not just here as the crop advances toward maturity, but also in Russia as a continuation of this summers drought will begin to affect next year's crop as winter wheat seedings begin in September.  As a result of the rally in wheat prices, look for plantings of winter wheat this fall in the US to increase significantly over last year.  As a result, corn acres may dip a bit from this years 87.9 mil. acres.         
 
       
Chart provided by APEX

Given the current environment, I feel the floor for corn prices has been raised above the $3.25 level.  I sense yields for this year's crop will have to exceed 170 bpa in order for prices to pull back to a harvest low range of $3.50 - $3.75.  If final yields are between the 165 – 168 range, my guess is that havest lows will be between $3.75 - $4.00.  In my estimation yields would have to fall below 160 in order for prices to exceed and stay above the $4.50 level.  Given my outlook I'd recommend that farmers that are 40% priced on the 2010 crop at an average of $4.14 basis Dec-10 futures to continue to offer to sell 10% at $4.45, and 15% at $4.65 thru the end of August.  In addition for those looking to begin marketing the 2011 crop, offer to sell 5% fo the crop at $4.40 and another 10% of the crop at $4.55 basis the Dec-11 futures.

For more information about this article, please contact Mark at 1.877.690.7303 or send an email to mark.soderberg@archerfinancials.com.


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