Ag economist advises selling poor quality corn crop now
Corn growers have been eyeing the markets warily, considering the 2019 growing season didn’t treat many of them kindly. From the delayed planting season to a cold, rainy stretch of weather to heavy flooding, crop losses and very late harvests in many areas, the markets showed just how much of an impact Mother Nature can have. Add to that the trade issues and weakness in the international marketplace and producers are hoping that 2020 turns out to be better market-wise.
Chad Hart, Iowa State University economist, said he’s been watching futures prices decline in the past few months due to a combination of factors.
“Let’s face it, I think the crop did turn out yield-wise better than folks expected throughout the year, so that, combined with the extreme weakness we’ve seen in the international marketplace, is a recipe for lower prices. I’m definitely seeing a retreat, but I also believe prices will rebound especially as we head into spring,” Hart said. “It won’t be enough to make people happy, but I’m seeing prices rebounding.”
Hart said that while yields were better than expected, the corn crop had lighter test weights, especially out of corn from the northern region.
“We saw some lighter test weights in Iowa, but when you move further north, especially in the Dakotas, they were pulling in some really light test weight corn and that’s going to show up on the demand side of the market especially as we enter spring. If you’re running cattle or hogs, you’re going to have to feed more corn to get that same daily rate of feed you’re used to because it’s a lower quality corn,” Hart said. “Same with ethanol plants. The lighter test weight corn means more bushels of corn to get the same amount of ethanol.”
So what does this mean to growers? Hart said producers should hang in there and set futures as part of their prices.
“We could see usage numbers pick up as we head into spring, but that won’t help us right now,” he said. “If I was a grower with good quality corn, I’d ask myself if I can delay until closer to springtime. Store it, hold it and let the prices work for us. But if I have more lower quality corn, I’m a proponent of selling it now and trying to reown it through paper whether futures or options. What I worry about here is if you just stick corn in the bin and forget about it for six months, that lower quality doesn’t store well and it’ll have more problems from where it already was at. It’s going to be worse, so you should sell it now and reown through paper. You don’t want the physical crop laying around on your farm. Own it on paper instead of in bushels.”
Many people aren’t comfortable with preharvest marketing, Hart said, selling a crop they haven’t grown, but work with a broker, trader, or grain merchandiser to look ahead and plan that out.
“If you think about it, farmers don’t often recognize when they’re using tools like futures and options because they’re doing it through someone. I don’t think many farmers recognize when you hedge to arrive, you’re using a futures contract, only through a location. So go in and talk to those folks and let them help you,” Hart said.