You Desperately Need A Game Plan For Locking In Feed Prices This Year; Here's Why

Cash corn and wheat prices remain at historic levels in some areas. In drought-stricken areas of Colorado, a shortage of feed means local elevators and feed mills are getting aggressive with bids as wheat is now over $10 per bushel. That same area is seeing cash corn bids close in on $8.

A recent AgWeb poll found 43% of farmers say the $7.01-$7.50 is the highest price they’ve ever received for their corn. 23% of respondents said their highest price ever was $1 above that, at the $8.01-$8.50 range.

USDA’s Prospective Plantings report initially sparked a bullish reaction in feed grains, Friday the markets took a turn lower. U.S. Farm Report veteran marketing analysts think feed users need to buy the breaks.

“I just want to give this one example,” says Bill Biedermann of AgMarket.net. “If we have 177 bushel [per acre yield] like last year's yield, we could have a corn carryover below a billion bushels, which would be unthinkable as far as what it could do to prices. So, I think it's in the best interest of all people who use feed is to protect the upside, and on the chart, $7.40 is kind of a good pivot point. If you can protect a $7.40 number using options or things like that, that would at least give you some form of a safety valve. Buying the breaks are easy. It's when it's breaking out to the upside that's hard.”

The volatility in the markets is currently seeing fuel from the anticipation of a reduced crop out of South America, uncertainty with what Ukrainian farmers will be able to plant, as well as acreage prospects in the U.S.

Late this week, Reuters reported that despite the Russian invasion, Ukrainian farmers have already sown about 400,000 hectares (988,000 acres), or one-tenth more than a year ago.

Reuters also reported South American farmers are now worried about diesel fuel shortages hampering harvest. Farmers in Argentina say shortages could impact the harvest of corn and soybeans, as only 4% of the country’s soybeans have been harvested at this point, and 15% of corn.

Soybean Prices Sink On Major Surprise in USDA's March 31 Acreage Report

The mixed bag of news will undoubtedly continue to impact commodity prices, which is why Arlan Suderman of StoneX Group also encourages feed users to buy the breaks.

“I'd be looking at securing the breaks in the market, because I think that's what we're going to be seeing a lot of traders do is buying the breaks going forward, unless we can get a much bigger Safrinha corn crop out of South America than what is currently anticipated,” says Suderman. “Our estimate for Brazil right now is one of the highest out there. And now the forecast is turning drier here in recent days for the Safrinha corn. April is a critical month. So, we could be adding more problems to the global corn supply. And I estimate that we're going to lose at least 20 million metric tons of exports out of Ukraine over the coming marketing years. Well, that's got to be made up by the United States, Brazil and Argentina.”

Bob Utterback of Utterback Marketing says there are two signals he’d be watching if he were in the market for feed.

“After late April, I’d be watching to see if the December corn contracts in May start taking out the April highs. That is a big red flag for a lot of end users. You have to get some protection. Option premiums are going to be pretty strong. So unfortunately, I hate to say it, but I usually buy the board or the bull spread by the front end sell the back end. But here again, you're going to have to be pretty agile because it's going to be very volatile.”

Utterback thinks if prices start taking out the April highs, that will be a strong signal the potential weather scare in the U.S. is real, which could inject more bullishness into corn prices.

“Then end users are going to scramble aggressively and that means the front end is going to rally over the back end. And if the bull spread is rallying the board, the board is going to rally, basis is going to be under pressure. So, having possession is probably the best way to go and have control of your inventory is probably the most secure way but most guys don't have the storage place to put everything on hand,” Utterback says.

Check the latest market prices in AgWeb's Commodity Markets Center.