The January WASDE and quarterly stocks report is notorious for starting off the new year with a shot of volatility and this year was no different. While the quarterly stocks report came in pretty close to expectations, the WASDE’s 3.8-bushel reduction in corn yield caught the market off guard in a big way.
Going into Friday’s report, I felt $5 old crop corn was unlikely without a large fundamental shift. Well, we sure got one. June’s WASDE from seven months ago saw this marketing year carrying out 2.1 billion bushels of corn. Fast forward to today, and that number has shrunk to 1.54 billion bushels, a 26% decrease.
Similarly, stocks-to-use decreased from 14.2% to 10.2% in that time. Using historical precedent, 14% stocks-to-use roughly calculates to $4-ish corn and 10% stocks-to-use roughly calculates to $5-ish corn. Both decreased supply and increased demand have pushed March corn futures 65 cents above the lows made in late August. On the heels of this report, I would argue that the $4.25-$4.60 price range we’ve been stuck in is now more like $4.50-$5 going forward.
Of course, every coin has two sides. When it feels as if the whole marketplace is bullish, it’s usually wise to look for headwinds that may disrupt expectations. One headwind could be the position of managed money. As of the latest Commitment of Traders Report, the funds were long 228,000 corn contracts as of Dec. 31. That number is likely higher now as March corn is up 12 cents since that report.
How long will traders get?
The question remaining: How long do they want to get? During this time of year in 2021 and 2022, the funds were long 300,000-400,000 contracts. It appears they still have firepower left – if they want to use it. Would it be all that shocking to see in next week’s report that they bought another 50,000 contracts, and are now approaching being long 300,000?
We are in a different economic climate in 2025 than we were in 2021’s inflationary environment (when it seemed everyone wanted to be long commodities). Do the funds still have the desire to have a 400,000-contract position? I don’t pretend to know the answer to that, but we may be closer to their preferred limit than we realize.
I would also expect a heavy dose of farmer selling during this rally (which could slow it down as well). A lot of bushels remain to be sold out of farmers’ hands, even with Friday’s 276-million-bushel yield cut. Many farmers are knocking on the door of $4.50 cash corn for the first time in six months. Cash flow needs are present with crop inputs coming due in the next month or two and producers tend to be more proactive marketers once the calendar turns to a new tax year.
Consider an option strategy
All this to say, a move to $5 may not be as easy as we would like it to be.
It’s why we as marketers have to stay diligent in our marketing plan. Keep targets in place and reward the market in increments. My suggestion to clients is to split up unsold bushels into four or five chunks and reward the market by selling one of them every 10-15 cents. As you execute sales, consider re-owning those bushels on paper with an option strategy that keeps you participating in a rally but safe in a sell-off.
For the first time in a long time, it feels like there’s life again in the corn market. We don’t want to sit idle. We want to capitalize on it.
For anything I may be able to help with, be sure to reach out to me at ksweeney@agmarket.net, give me a call at 815-691-2672. Otherwise, feel free to give anyone at AgMarket.Net a call at 844-4AG-MRKT.
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