After another record-shattering crop in 2015 (following a record crop in 2014), prices are in the doldrums. It’s understandable because bottoms in the market last for months, while tops last minutes! This is likely to be another of those years. So Pro Ag expects prices to do almost nothing once they bottom in January, and we probably are looking at huge losses projected on the 2016 crop all winter, where there will be weeping and gnashing of bankers/farmers teeth all winter long!
But don’t fret. This is a good time (while you are staring at 50c to $1/bushel losses all winter long on corn grown for 2016 in budgets this winter) to renegotiate your cash rents with landlords. That’s because you’ll have to come up with as much as $1/bushel of your own working capital to grow corn in 2016 since the banker’s regulators won’t let them finance your projected losses.
Remember this: Do not sell anything at these large losses. In fact, do not sell any grains for the next five months. It will be at the bottom of the next two years’ prices! Instead, buy! Buy and buy and buy now at the bottom. Buy back all your hedges and keep your corn and soybeans and wheat because there is virtually very little downside risk from here. If you are a livestock producer who uses corn and has to buy feed, buy all your needs for the next two years in the next five months (after the January report, which we think will be bearish and cause the bottom to be formed). If you are a speculator, buy! The best way to do so at the bottom is to sell puts after January 12. Sell and sell and sell puts. They will likely all expire worthless for the next six months at least, or longer. Sell puts and take the downside price risk if you are a producer, speculator, or trader. Make sure you have the capital to hold these positions until expiration because there will be a few up days like yesterday. But not many!
Weather is becoming a non-factor until mid-March in the U.S., as winter wheat is slipping into dormancy nationwide and virtually all the corn and soybeans have been harvested (as have almost every other crop). Weather in South America (SAM) is just heating up as planting is in full speed and most of the SAM growing regions have had good planting weather with the exception of northern Brazil, which still has a continued warm/dry forecast for the next seven days. But thereafter it turns wetter in today’s forecast as the eight- to 14-day today suggests the rain moves into northern Brazil and gives them a good soaking (which is direly needed right now). That could push grains lower (especially soybeans) if that forecast is verified in the next few days.
In 2015, so far we have harvested a record crop of soybeans and so far USDA says a near record-large yielding crop on corn (we think in Jan it will be revised up 1 to 2 bushels per acre to a new record-large yield), so prices are in the process of bottoming. Since bottoms typically last months (while tops last minutes), we are looking at a very slow grain market for the next three to five months.
We think prices will do virtually nothing the next three to five months (a great opportunity to sell puts and calls and have them both expire worthless), giving farmers plenty of opportunity to sell at the bottom!!! As we said Friday, do not do it!!! Forget about selling this winter, and instead focus on lowering cash rents as you will project a 50c to 80c or greater loss all winter projecting current prices at harvest. It will be ugly, as you will need to show your banker that YOU are financing the 50c to 80c loss/bushel of corn, not him!
We think now that harvest is over, markets will slow down their descent, but still might go lower and test the 2009 lows of $3.30 weekly corn prices, which implies another potential 25c to 30c downward price risk in corn into January (when corn yields are likely to be revised higher 1 to 2 bu/acre to a new record-large yield of 171.5 bu/acre or so).
