Weekly Corn Review

(Farm Futures) – USDA releases a battery of numbers on Friday, including its first monthly estimates of 2014 crop production, supply and demand. But the data may be a sideshow, as the market focuses on squarely on weather.

USDA’s forecasts will be somewhat dated, at best. The agency uses its March 31 Prospective Plantings estimate as a base. Most years economists multiply harvested acres by an aggressive yield projection that assumes normal planting conditions and growing season weather, a number that could top 165 bpa. I’ve dial that back a little to 161.7 bpa, which produces a crop of 13.54 billion bushels. Carryout would be little changed around 1.3 billion under my demand assumptions, keeping potential for summer rallies to take out the spike highs from April 9.

With a bigger crop, USDA’s forecast likely will be above this, perhaps upping to carryout of 1.8 billion. That bearish scenario would suggest the April highs should hold.

But this discussion is academic at this point. What the market really wants to know is how much of the crop will be planted, and by when. I don’t expect Monday’s Crop Progress report to show planting above 30%, and more rain this week could keep progress relatively slow. Still, dry soils in the west and a drying trend from the south should ensure planting progress is normal. But the challenges, especially in the north, should hold down any big increase in acreage, and perhaps scale back yield potential a bit.

Futures this uncertainty, testing support on both old and new crop contracts last week. While I don’t look for a big selloff until the crop is up and growing in good shape, Rallies may be hard to come by unless the weather threat intensifies.

Old crop should get at  least a little support from USDA, which is likely to cut its estimate of Sept. 1, 2013 inventories by 50 to 75 million bushels due to stronger exports and ethanol usage. Some of these gains may be offset by lower feed usage, but the agency may hold off on cuts there until its next stocks report June 30.

Overall, this is a maybe/maybe not outlook, the same as most years. That’s why I’ve recommended pricing 35% of new crop. Combined with good Revenue Protection crop insurance and the new farm program it should assure most growers a profit.

Get ready to add to sales on any rally near April highs. Adding another 5% seems prudent, because there’s still potential for sub $4 corn with big yields this year.

For those don’t want to commit or need more coverage, selling an out of the money deferred call, say a July $6 strike, to pay for a December put a couple strikes out of the money is one possibility. While doing this in a mini-max solves the problem of upfront cash flow and margin risk, production risk remains unless adequate levels of Revenue Protection were purchased.