Top Tips on a Thursday
Corn is flashing a warning sign for the rest of the ag complex, as hedge funds unwound record-long positions and sent prices sliding double digits. This week’s advisers weigh in on where the bottom might be, why options strategies are gaining favor over outright futures bets and how fertilizer markets are finding tentative relief after a volatile year.
Also, don’t miss the National Oceanic and Atmospheric Administration’s Brad Pugh on what a historically strong El Niño could mean for your winter, including a potential for drought relief and a warmer outlook across much of the country. But could the Corn Belt see a different story? Be sure to tune into the latest edition of Top Tips to see where experts are focused as October draws to a close.
- Hedge funds have sold over 200,000 corn contracts since early September.
- With corn yields running 5% to 15% below last year in parts of Illinois, Iowa and Nebraska, expect wild swings in USDA data.
- PLUS: December corn futures may need to hold above $4.57 to build confidence in a bottom.
David Whitcomb, Peak Trading Research
“Corn is sending a warning to the rest of the ag complex. Hedge funds have been trimming corn length since accumulating a record net long position at the beginning of September. Since then, funds sold have sold over 200,000 futures contracts and prices have fallen over 15%. Plus, it’s red flag for the markets when funds still hold big long bets in soybeans, as well as in Europe-traded corn and wheat. Crowded positioning is a big risk because bulls need to be fed. Meanwhile, macro markets are nervous ahead of next week’s Federal Reserve meeting.”
— David Whitcomb, head of research, commodity markets, Peak Trading Research
ACTION: Pay close attention to speculative positioning, particularly with funds historically stretched, because crowded trades can unwind quickly.
Brad Pugh, National Weather Service/NOAA
“Given the historically strong El Niño, we’re expecting an increased chance of below-normal precipitation limited to the northern Rockies, northern High Plains and the Great Lakes region this winter. Also due to this strong El Niño, temperatures are favored to average above normal from December through February for a majority of the Lower 48. We could still have some colder outbreaks during that three-month period. But as a whole, it should be a warmer-than-normal winter throughout much of the Lower 48.
“We also see drought relief ahead. Currently, we have more than half of the country designated in drought conditions. But we should see improvement in drought over the Southeast and the southern part of the U.S. as El Niño drives more moisture into the region. I would expect that maybe as early as January, that drought could come to a complete end across the Southeast.
“For the Corn Belt, the winter moisture outlook is mixed. The western Corn Belt leans toward the wetter side, but for the remainder of the Midwest, we see equal chances of near-, below- or above-normal precipitation. Also, we still have pretty widespread drought conditions in the upper Mississippi Valley. Historically, during strong El Niños, there is less snow over the northern Plains and upper Mississippi Valley. If that holds, drought concerns could persist into next spring.”
— Brad Pugh, operational drought Llead, National Weather Service/NOAA
ACTION: Keep a close eye on short- and long-term weather outlooks through the winter and watch for El Niño effects.
Andy Wold, Producers Hedge
“The grain market over the last few weeks has me thinking of the famous line from Charles Dickens’ “A Tale of Two Cities”: “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair …” Corn and soybeans were rallying, and it felt like the best of times. Many knew it was wise to make more sales, but it was hard to do with the amounts already sold. Many were leaning into a crop reduction by USDA and got the opposite.
“This market has set back, and it feels like the winter of despair. In my opinion, we will see a winter of volatility. The beans are good, but so is demand. The corn yield is extremely variable. There are some really good pockets of corn, but much of central and northern Illinois’ corn yields are coming in 5% to 15% lower than last year, and we’re hearing the same through portions of Iowa and Nebraska. I think we will see wild swings over the next six to 12 months in USDA data reporting. Watch basis and spreads; they will tell the story. If I’m hauling into an elevator, I would consider selling your grain and buying March calls. They are a good value.”
— Andy Wold, commodity broker, grain merchandiser and owner, Producers Hedge
ACTION: Patience should pay off, but look for basis opportunities and take advantage of them when they show up.
Manuja Pandey, ICIS
“It has been an extraordinary year for the U.S. fertilizer market. The conflict with Iran and disruption through the Strait of Hormuz sent sulfur prices sharply higher, while adding pressure to energy and ammonia costs, creating a perfect storm for phosphate producers and forcing production cutbacks. The Middle East accounts for roughly half of global sulfur exports, highlighting the market’s exposure to disruption in the region.
“Some relief is now emerging. Tampa’s Q4 sulfur contract prices have fallen $90 per long ton from Q3 to $615 per long ton CFR, offering some aid to phosphate producers. Sulfur costs feed directly into phosphate production economics. An estimated 0.4 metric tons of sulfur is required to produce 1 MT of diammonium phosphate, meaning the Q4 drop could shave roughly $35 per MT off the sulfur cost of producing DAP. Although this is nothing to sneeze at, it is worth noting that sulfur prices are only part of the equation. Ammonia and energy remain significant cost pressures, and physical sulfur availability in the U.S. remains constrained.
“Growers are having to make every fertilizer dollar work harder, prioritizing applications on lower-testing soils while potentially delaying applications on fields where phosphorus levels are already sufficient or switching to more affordable nutrients like nitrogen when they can. All eyes are now on large producers, such as Mosaic and Nutrien, and the pace of production recovery. If tight phosphate supplies and high prices persist into the 2027 crop cycle, we expect that low affordability will increasingly influence farmers’ nutrient decisions, with knock-on effects for farm margins, crop productivity and ultimately, food security.”
— Manuja Pandey, fertilizer specialist and senior editor, ICIS
ACTION: Watch whether cheaper sulfur will translate into recovering phosphate production and, ultimately, lower fertilizer costs.
Mark Knight, Farmer’s Keeper
“The midweek turnaround in corn futures was very impressive and gives off some bottom-type vibes. However, with 44% of the crop harvested as of last Sunday and potentially 60% to 65% by this Sunday, we could see additional harvest pressure over the next week or two. We need to continue to have closes above $4.57 in December futures to build confidence this market has bottomed. If we can’t hold these levels, $4.25, which was July’s low, might be the next area we test. Funds are still pretty long, so they will continue to decide where this market goes.
“From a marketing standpoint, I don’t like entering trades at these levels. I do believe that long-term, these levels will be looked back at as bargain prices. I just don’t know with any real certainty where the bottom actually is. With that said, I don’t mind buying March corn futures down here, but one needs to understand there may be some risk. Don’t enter that trade if you can’t stomach 30-plus cents of downside.”
— Mark Knight, senior analyst, Farmer’s Keeper
ACTION: Consider buying the March $4.80 put option at 19 cents, which could be cheapened by selling the $4.60 put at 10 cents.
Lauren Urbanczyk, Texas Hedge Risk Management
“The continued fund liquidation in grains has been unrelenting this week. Over the past several weeks, we have discussed the flexibility provided by options strategies, including call spreads and short-dated options. This is exactly why we like options spreads: They are cheaper and provide the flexibility to reposition. We previously talked about buying call spreads against cash contracts for re-ownership, and selling a short-dated Dec. 27 call against them. That whole strategy would have cost us less than a couple of cents, and now is going to expire out of the money.
“Getting these strategies to work for you with relatively low options cost gives us the ability to now get much more beneficial re-ownership at lower prices. Spend time learning how short options can work for your operation to ultimately reduce cost and risk. Of course, past performance is not indicative of future results. Looking forward, if you have concerns about continued price risk, December corn puts are still cheap and give us 30 days of price protection.”
— Lauren Urbanczyk, co-founder, Texas Hedge Risk Management
ACTION: See if any repositioning is beneficial to your individual business. One scenario might be to buy back short futures and replace with a December $4.50 put.
Matt Wiegand, FuturesOne
“After scoring fresh lows for the move on Wednesday, we were able to see a bit of reversal with corn finishing higher, and soybeans and wheat solidly off the bottom of the session. Trade has gotten increasingly oversold as the slow start to harvest pressure has continued to linger longer than we have seen in other years. The oversold conditions and fund liquidation will likely open the door to short covering as harvest hits the homestretch, which could signal the start of seasonal strength. Outside markets and world events continue to be volatile, but sustained spillover has been limited as they have struggled to find sustained direction. South American weather will begin to draw more attention as we work more into key growing time frames there.”
“Short term, the key things to look at will be to assess harvest results and unpriced bushels as we head to the postharvest time frame. In many cases, options may provide cheaper upside than commercial storage rates, but basis should also be near harvest lows, which can open the door to better cash values even as the futures potentially lag, at least in some regions into November.”
— Matt Weigand, risk management consultant, FuturesOne
ACTION: If we can shift toward postharvest seasonal strength, 2027 pricing opportunities can start coming into play again, with acres with fall-applied fertilizer the first priority for protecting margins into next year.
Arlan Suderman, StoneX
“We have two wars on commodity logistics, both in the Middle East and in the Black Sea, and that’s what’s really increasing the prices for the inputs that we pay but also helping with the grain prices as well.
“When something happens, the market has had an attitude that it is going to get resolved. So the highest prices have been those up-front prices, not the deferred prices. And so that allows you to take advantage of the market’s expectations that things are going to get resolved.
“If they do get resolved, those prices into deferred contracts may not go up. But if it doesn’t get resolved, and they do go up, you will wish that you had taken advantage of those lower prices — just like you wish that you would have bought diesel for this fall’s harvest six months ago. And so therefore, you look at, ‘OK, am I risking being wrong here? What do I have to lose by being long?’”
— Arlan Suderman, chief commodities economist, StoneX
ACTION: Go long on pricing inputs with deferred contracts.
Matthew Pot, Grain Perspectives Inc.
“Two consecutive bearish USDA reports have added to harvest pressure. For yields, USDA may provide more context on the higher-than-expected estimates in the October report where the implied ear weight hidden within the objective yield data saw a significant increase. In 2024, implied ear weight went full circle following an October increase, but it took until the January report to do so.
“We can debate all day whether USDA is right or wrong on its yield estimates. More telling, however, will be whether lower prices translate into increased export demand. In corn, we have reached some retracement regions. The pullback has lasted longer than typically expected during adjusted harvest pressure.
“In soybeans, funds have not been selling their long positions to the same extent as they have in corn. We do not need to look much further than the recent pressure in corn to see the impact when funds head for the exit. Volatility in the Brazilian real should also be watched, with a presidential election runoff taking place this weekend. Soybean export demand is ahead of pace, but unless China removes its 10% tariff on U.S. soybeans or Brazil provides a fresh source of support, that pace could eventually hit a wall.
“Funds generally do not favor holding long grain positions during periods of monetary tightening. Next Wednesday brings another Federal Reserve announcement, adding another variable to monitor during harvest.”
— Matthew Pot, founder, Grain Perspectives Inc.
ACTION: With funds still holding substantial long positions in soybeans, any upside correction following harvest pressure could provide an opportunity to reduce risk.