The New World screwworm outbreak that closed the U.S.-Mexico border to cattle imports could shift corn demand patterns, but South Dakota farmer and broker DuWayne Bosse believes the grain will still get used—just differently.
"That corn still gets used up. It just shifts from the export demand category to our feed and residual category," Bosse explains on this week’s Ag Marketing IQ In Depth. U.S. corn exports hit record highs this year as Mexico fed cattle domestically instead of shipping them north. When the border eventually reopens, those cattle will simply consume American corn on U.S. soil.
As ranchers adjust to managing NWS and corn growers watch for a market shift, one of the price indicators to watch is the commitment of traders report, out each Friday afternoon. Futures can move quickly when those traders pile in or hasten to the exit. For instance, Bosse notes, the corn market recently dropped 50 cents in days after funds liquidated approximately 300,000 contracts. "When there's that many sellers leaving, that's exactly what happens," Bosse says.
Make a courage call
While the corn market may not make another high this season, Bosse advises farmers to consider hedges as crops roll into the summer when adverse weather could spur a rally.
His strategy? Buy short-dated "courage calls" at strike prices like $4.95 or $5.20. It guarantees a floor while leaving the upside open. "I want those calls in your back pocket, not to necessarily make money, but so when the market does rally on, say, a hot, dry forecast July 4th, I want you to have the courage to go out and sell new crop, knowing you have those if it goes to six bucks," Bosse explains.
He remains cautiously optimistic long-term, citing potential China purchases and expanding biofuel demand. "I think we are starting a bullish cycle," he says, though he warns China will likely buy strategically during price dips.
That said, Bosse said, the key is to take a profit when the opportunity arises. “Forget the high, forget the low, because you're not going to hit it,” Bosse says. “Yes, the guy in the coffee shop every morning makes it sound like he did, but he did it on 100 bushels and he's got 100,000 on his farm. So, yeah, forget that. Just try to get base hits and, you know, just be in the top third and you're fine.”
For more tips from Bosse’s analysis of the current market, watch this week’s Ag Marketing IQ In Depth.