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Expect volatile markets ahead

By Doug Tenney, Leist Mercantile

During the second half of May we observed some Ohio facilities with up to 10 cents wider basis or smaller flat price for June corn compared to May delivery corn. No doubt many producers had unexpected time to move corn to grain facilities in May due to ongoing planting delays thanks to rains which just kept coming. There were indeed logistics issues at river facilities as barge freight experienced vast differences in cost for May compared to June. Corn for May shipment along the Ohio River peaked as the basis was at least 20 cents above the July CBOT price while June delivery corn struggled to see even positive basis levels. Numerous facilities I spoke with were disappointed and surprised at the small amount of corn moving into their facilities during May.

The rapid price rally for corn during May no doubt rapidly scaled back producers’ ideas of selling 2018 corn still in their bins, especially since so many were still planting 2019 corn acres. During May, corn was up 64 cents compared to the end of April. The last week of May corn was 22 cents higher than the previous week. During the last few days of May we experienced customers done planting corn while others were just a few days away from completion. Still others had not yet been able to start at all.

Most Ohio counties had a June 5 final corn planting date for crop insurance coverage in order to have 100% of their corn guarantee in force. June 25 is the final date to plant corn with reduced coverage levels. Producers will need to notify their crop insurance agent within 72 hours of their decision not to plant corn and utilize the prevent plant coverage for corn acres.

To say that price volatility for corn and soybeans rapidly increased in May is a vast understatement. Corn daily ranges were near 20 cents while soybeans approached 30 cents. The 9:30 am restart for CBOT prices following the pause at 8:45 am has often seen huge price differences take place in a span of just 45 minutes.

Money flow and headlines continue to be huge price movers. Earlier this year, managed money set multiple records for the huge amount of short corn and short soybean positions they held. Corn moved sharply higher last month with the May high for December CBOT corn at $4.54. It appears corn moved sharply higher in an attempt to prod producers to plant corn knowing they would likely have a reduced yield with that revenue stream probably higher than the prevented planting payment they would have received.

U.S. soybean sales to China could be lost forever, especially upon hearing of increased soybean acres for the upcoming production year in Brazil.  Some are already suggesting 2020 soybean production in Brazil could reach 130 million tons. This year it is 117 million tons.

Become familiar with the term, “Short crop, long tail” as the price peak could happen much sooner than expected. Short crop refers to lower than earlier expected production. Long tail refers to the price drop (from the highs), which could be months in the making. Some have suggested the corn price peak could occur once 85% of intended corn acres have been planted. Expect huge price volatility the balance of this summer.

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