"What is Normal?"

As May begins, we hear a lot about "normal" or "average" in terms of temperatures, rainfall, and planting progress. Normal, or average planting progress is calculated over a big area over time. For those in the Delta and Eastern Corn Belt, we are behind average, while the western and especially northwestern areas are well above normal, and compared to the last two years when many acres went unplanted, are much above average progress. Total for the U.S.? Just slightly behind, but with this weeks weather, the trade is looking for us to be 50% done putting in the corn crop. It is possible, and everyone knows that if the soil is dry enough, we can put a lot of acres of corn in fast. Here in Northern Indiana, it is dry enough, but will need to warm up before anything grows. Is the market too complacent? Prices have fallen, taking out the previous lows in December corn, and we have really just started. Funds now have a short position in corn futures compared to last year when they carried a very large long position into May. Did we as producers get too complacent by expecting the funds to come in and buy up futures contracts? Questions for thought, and now we must look forward to adjust our plans and make ourselves as profitable as possible. The following are some factors that may come into play:


1) Planting progress is slow in the Eastern Corn Belt and the Delta, where some acres may have been switched already

2) Export sales have been decent, not bullish, but respectable given the price differences with our competitors

3) Funds are now short in all three grains, record short in wheat

4) Despite the recent rains, winter wheat conditions have not improved over the last 2 weeks

5) Next weeks weather looks like it could stall planting for a while

6) Areas of moderate drought are showing up in the northwest, timely rain will be needed


1) Western Corn Belt producers are making great progress

2) Carry out levels of all grains are ample

3) Planting progress should be very close to normal by Sunday night

4) We may have more planted acres than the March intentions, prevent plant should be lower than a year ago

5) 6-10 day and 30 day forecasts are warmer, above average

6) Bird Flu is in the news, birds are being culled, does it mean a lot in terms of feed demand lost?

 The following  paragraph is repeated from  last month, it still applies:

For old crop grain, we are not comfortable going into these reports unprotected. Beans over $10 and corn near $4 are good sales in our opinion. Selling grain in the bin and replacing that sale with a low risk re-ownership plan is a good one, as we will not only have futures risk buy also basis risk if we wait too long and crops look good this spring. Remember last year? By June 30, we had a disaster in flat cash price. It could be worse this year, so why be a part of it? Getting rid of physical inventory and replacing with a limited risk option or protected futures position takes that off the table. Call us for some specific ideas on getting that off your plate before the planters roll and good marketing intentions become "woulda coulda shoulda".

For those with a lot of old crop grain in storage and unprotected, the good news is that basis is strengthening in many areas. Even thought we are now focused on getting seeds in the ground, grabbing a good basis bid is getting more important as time goes by. Locking in a good basis now, and watching for a good short covering rally if the weather provides a spark can put some extra positives into your net farm income. What we do not want to do is wait until the new crop is "made" and our old crop is still in the bin, unpriced. We like incremental sales and a limited risk re-ownership plan that focuses on the future and potential weather issues later on. We are all "hoping" for that weather spark, or something that will drive funds to cover short positions, but we must emphasize, make sure your orders are in, either at the elevator or here. The following are our thoughts going into May:

1) We are not "bearish" corn at these price levels, and still believe a rally is possible, IF there is a threat to supply

2) We are comfortable owning cheap, short dated December calls to replace cash sales, or defend anticipated sales of new crop

3) We are more bearish beans from this price level, cash bids are near $10, and those should be sold and if friendly, own a call

4) Given the size of the fund short position in wheat, we are not bearish at this price level, and would be owning calls

5) There is 45 cents carry from July to March wheat, selling the carry and owning calls for December may be useful

There is no question that the market has been under negative psychology for a while now, and maybe too long. We compare  the "bird flu" and the negative implications to dry weather scares: neither can be quantified in terms of actual bushels, so when we have negative demand factors, like bird flu, or GMO issues, the market sells any rally. When drought hits, the market buys any dip, because we just don't know how bad it can get. What we need now if something that causes the psychology to change, for the funds to cover shorts, and give us the opportunity to move some grain. Make sure you have a plan together to move some and cover risk when possible.

From  the technical side, we have the following numbers from our computer to consider:
           May Corn       Support                Resistance
                                 3.67                      4.00                                                                    
                                 3.57                      4.13
                                 3.38                      4.25

           May Beans        9.40                     9.85
                                  9.15                    10.05
                                  8.83                    10.20                             

In conclusion, while the growing season is happening now, our marketing job goes on every day as usual. Emotions are running high as red ink is showing up on balance sheets now, and we do not like this. Its hard enough work and loads of risk to take on by being a producer, and now it is not paying anything to either work or take on risk. A reasonable and rational approach is what we favor. Knowing that with the increased carryover of grain from last year, a very big crop in South America that has been coming out of the field in good order, and so far no threatening weather, our upside is more limited than the last few years. But, profitable prices are still possible, and we have just started the planting process. What will happen if say, on May 21 we have a frost threat? We are not predicting one, but the point is, we have to be ready to act if an opportunity arises. Keep in touch and make sure you have orders in at prices you are happy with, and don't forget to thank Mom next weekend for all she has done!


Dates to Remember this month

Crop Progress and Conditions every Monday at 3:00 central time

Export Inspections every Monday at 10:00 central

May 12th Supply/Demand and Crop Production

May 22nd  Cattle on Feed

Export Sales and Shipments every Thursday at 7:30 am

Mike Daube      888-391-6330
Allen Gard       800-205-1700