Chicago Board of Trade Market News
Outlook: Corn contracts worked lower this week as large speculators were forced to adjust their portfolios with the arrival of the end of month and the end of quarter time periods. Basis remains firms as this weakness in futures is occurring and seems to indicate that producers are presently in no rush to sell while corn contracts test key levels of support. Many of those producers seemingly recognize that open interest is not collapsing as large traders adjust their positions. There also seems to be some recognition that while the overall planting pace of U.S. corn is in line with the five-year average, there is still acreage in the northern Corn Belt that remains unplanted even as the prevented planting dates relating to crop insurance approach.
Farmers are entitled to plant after the final planting date passes but the risk for a farmer increases because any acres planted afterward receives lower yield and revenue guarantees. (The coverage rate commonly declines at 1 percent per day). In contrast, the farmer who has been prevented from planting may choose to simply not plant at all and can receive compensation for 60 to 70 percent of the insured coverage. The primary incentive for farmers to select payment and skip planting is market prices. This season, the December corn contract has declined by more than a half dollar from the recent highs as the prevented planting dates approach.
The general outlook is that some level of U.S. corn acreage is going to be lost this season as a number of producers elect to receive payments rather than plant. The exact amount of that acreage decline will become more apparent when USDA publishes their Acreage report on June 30. Market participants may be particularly sensitive to this data since it is arriving at the same time that the majority of U.S. corn prepares to enter the crucial period of pollination.