What's the next corn market mover? I am not sure, there are a lot of possibilities to choose from, but the market will stay volatile, and one or more of them will not match today's expectations.
For example, European debt crisis, South American weather, 2012 corn planted acreage, El Niño, La Niña, oil prices, etc…. And given the tight U.S. and world corn supplies, it does not take much change in expectations, or change from expectations to reality/final numbers, to have justified large price changes.
On Jan. 12, 2012 the USDA released the 2011 Annual Crop Report, the Dec. 1, 2011 Quarterly Stocks Report, and updated Supply/Demand Reports.
And the market took the reports overall as quite negative, March corn futures dropped the limit 40 cents the day of the report, and 12 cents the next day. It was not so much that the updated numbers were different from prior USDA estimates, as that they were different than the market expectations.
U.S. 2011 corn production was 12,358 million bushels, 48 million more bushels than the November projection. Acres harvested were increased 100,000 acres, and the yield was increased one half bushel per acre to 147.2 bushels per acre.
In some ways the final corn production number was really close to the November USDA projection, but it was 93 million bushels more than the trade "expected".
The bigger market negative was the Dec. 1 stocks report showing stocks on hand Dec. 1 being 251 million bushels higher than the trade expected. Of course 93 million bushels of that was due to the trade expecting a smaller crop, but even the remaining 158 million bushel difference is large.
The problem for me was that the stocks report indicated feed use/disappearance in the first quarter of the 2011-12 corn marketing year was down significantly from 2010, this does not match up with livestock numbers and slaughter weights this past fall relative to the previous fall. However, there were no changes in the USDA annual feed use projection for all of 2011-12.
Made only one change
The USDA only made one change in the 2011-12 corn use projections; the export projection was raised 50 million bushels. The reason for the projected increase in U.S. 2011-12 corn exports was the fact that the projected Argentina corn crop was lowered by 120 million bushels due to dry weather.
Given the 48 million bushels production increase and the 50 million bushel projected export increase, projected ending stocks remained basically the same and the stocks-to-use ratio remained a very tight 6.7 percent.
A couple of notes about the world coarse grain situation; world 2011-12 coarse grain production is projected to be a record despite the reduction in the Argentina crops.
However, projected world corn ending stocks remain at very tight levels. World wheat stocks are at more than adequate levels, so wheat is basically being priced as a feed grain. This also may limit/slow upside corn price moves.
So what do I do with my remaining 2011 corn and expected 2012 corn considering all the price risk?
I would argue you go at this in several ways. From your financial balance sheet and projected cash flow statements, determine how much risk you can/are willing to take.
Second, determine the downside price risk. To do this check out the probability price forecasts on my webpage, https://www.msu.edu/~hilker/ . As you can see, there is also considerable upside price potential, so you have tradeoffs. From this information consider making both some upside and downside price targets.
But also consider setting the targets in the context of the market, where there is often likely upside and downside resistance areas.
For example, with March corn futures, without some major negative fundamental news, see above, it can happen, there will likely be a good deal of resistance for the market to go below its previous low, in the $5.80 range, but if it does, not much resistance for a while below that.
And on the upside, the resistance is in the $6.60 range.
So do you need/want some protection if the market breaks below $5.80? Should you consider pricing some corn, especially if you have a lot left, if March futures move back close to $6.60?