Corn and beans have had a decent pull back over the last 7 days, with funds being sellers. Funds are sellers due to weather, China lockdowns, and global recession. US corn planting progress came in at 22% complete, down from 64% last year and 50% on a 5-year average. Beans came in this week at 12% planted, down from 39% last year, and the 24% 5-year average. Crop consultant Dr. Micheal Cordonnier cuts his corn yield expectations to 177 bu/acre, dropping production 1.5 million bushels, which stems from a slow planting pace.
In my opinion, we have little downside risk on corn and soybean futures, but there is a lot of growing season to go. We could see a slight decrease in corn acres, with beans picking up the same amount, just due to the time of year and planting progress. The planting progress in the northern states in the corn belt is far enough behind and wet enough, that it will be tough for them to get it all in. Producers with corn in the bins need to get bushels priced before the CN22/CU22 corn roll, or at least manage that spread, as we could see that get volatile closer to expiration. I think you also need to be watching the CZ22/CH23 corn spread with the risk of below trendline yields, and potential shrink on percent stocks-to-use ratio on the 2022/2023 crop year. The corn crop is going to be planted in a relatively tight window. With that being said, if we see good weather through pollination, we could see yields come in closer to trend line yields. It will be a tighter window all year and if the weather doesn’t cooperate, we could see a decent reduction in yield.
With the volatility in the market place, it would not hurt to have some protection from the downside that you can be comfortable with. One strategy to look at would be buying a $7 August short dated new crop corn put and selling an $8 December 22 call for even money. That will protect you below $7 through the end of July and give you upside potential to $8.
Please feel free to call any of the Aurora Cooperative grain merchandiser for any additional questions you may have.
-Damon Kasselder, Director of Grain Merchandising and Origination