Friday’s October WASDE report was disappointing, particularly for corn, and it changes some of our thinking as we move further into harvest.
We’ve spent several weeks discussing the potential for a harvest low and an eventual recovery. That possibility hasn’t disappeared, but the latest fundamental information requires us to temper our expectations.
Here’s what we’re watching and how we’re adjusting our approach.
What We’re Thinking About This Week
• The October WASDE materially changed corn’s fundamental picture.
USDA increased its national corn yield estimate by nearly 3 bushels per acre, just one month after reducing its yield estimate in September.
That’s a difficult adjustment to reconcile, particularly given the mixed yield reports we’ve been hearing throughout harvest.
Nevertheless, the balance sheet is what it is, and the market responded by breaking lower.
With projected corn stocks-to-use now approaching 11.3%, our historical stocks-to-use versus average farm-price modeling suggests a nearby futures-equivalent value around $4.75.
That isn’t necessarily a price target or a floor. It’s a statistical reference based on the historical relationship between available supply and price.
But it does tell us something important: the fundamental valuation of corn has changed, and our marketing expectations need to change with it.
We’re not abandoning the possibility of a post-harvest recovery. We are, however, tempering our expectations for how far that recovery may carry prices.
• Corn spreads are offering another opportunity to capture carry.
With Friday’s selloff, corn futures spreads have widened again to levels deserving our attention.
That creates opportunities to consider rolling existing futures hedges or HTAs into deferred delivery months, capturing additional carry in the process.
The economics still require careful consideration.
At a 7.5% operating interest rate, $4.75 cash corn costs approximately 3¢ per bushel per month to finance. That’s a significant expense when evaluating the benefit of holding grain into March, May or July.
However, futures carry is only part of the equation.
From a seasonal perspective, basis often improves after the immediate pressure of harvest subsides. That potential basis appreciation can meaningfully improve the economics of storing grain beyond harvest.
We’ll continue evaluating futures carry + potential basis appreciation − carrying costs to determine whether holding grain forward is justified.
The goal isn’t simply to store grain. It’s to determine whether storing it is likely to add value.
• Existing put protection may offer an opportunity to capture equity.
For clients holding long put options as part of their risk management program, the recent decline in futures may have created an opportunity worth evaluating.
As prices decline, existing puts can gain value. Rather than simply holding those positions unchanged, you may consider rolling puts down to lower strike prices, capturing a portion of the accumulated option value while maintaining downside protection.
The objective is to recover some of the equity generated by the market decline without abandoning the protective structure.
There is a tradeoff. Rolling to a lower strike reduces the protected price floor, even though downside protection remains in place.
We’ll evaluate those opportunities based on the original strike, current option value, remaining time to expiration, and the amount of protection each client still needs.
Risk management positions deserve management, too.
• Our marketing plan is shifting toward selling rallies and retracements.
We’ve spent much of the growing season looking for opportunities to advance marketing on strength, while maintaining some flexibility for a larger move higher.
With the latest balance-sheet adjustments, our expectations have changed.
From current price levels, our primary objective will increasingly be to sell rallies and retracements toward previous contract highs in both corn and soybeans, rather than positioning our marketing plan around the expectation of significant new highs.
That doesn’t mean new highs are impossible.
It means we’re placing less emphasis on that outcome when deciding how to manage the remaining unpriced inventory.
We’ll continue evaluating opportunities to advance physical sales, establish hedges, and improve the overall marketing portfolio as rallies develop.
• We can maintain upside opportunity without depending on a breakout.
One strategy we’re evaluating is the purchase of a March corn call option.
The maximum loss on a purchased call is the premium paid, plus transaction costs.
We don’t need to build our entire marketing plan around the possibility of a major rally.
Instead, where appropriate, we can use limited premium investments to retain some upside participation while continuing to make disciplined sales as opportunities develop.
We can be less optimistic about the probability of new highs without completely eliminating our ability to benefit if they occur.
• Our old-crop statistical models will be published this week.
We’ll be publishing our updated old-crop corn and soybean statistical models this week as we transition further into the post-harvest marketing period.
There’s an important consideration with this year’s models.
Both use a defined September benchmarking period to establish the starting reference for our historical price measurements. Typically, September is a period of seasonal price weakness.
This year was different.
Corn and soybean prices were relatively strong during the benchmarking period, which means our initial statistical targets may be skewed toward the upside compared with what the current market environment might otherwise suggest.
We’re aware of that potential distortion.
However, we don’t change our benchmarking methodology simply because this year’s market behaved differently.
Consistency in how and when we measure the market is essential to maintaining the integrity of our historical comparisons.
We’ll publish the models using our established methodology while acknowledging the potential upward bias in this year’s initial targets.
Our dynamic statistical models, which are updated regularly on or around the first of each month, should help moderate that effect as additional market information becomes available.
The objective is to use the historical framework consistently while allowing our ongoing analysis to adapt as market conditions evolve.
• Harvest execution remains our immediate priority.
Outside of Friday’s report, not much has materially changed in our week-over-week approach.
We’ll continue monitoring harvest progress, actual production, grain quality, basis opportunities, and futures spreads.
As actual yields become known, please continue updating your FWS Account Manager so we can keep your marketing plan aligned with your available production.
Where Our Attention Is Focused
The October WASDE has changed our fundamental outlook for corn.
We’re now working with a larger projected supply, a higher stocks-to-use ratio, and a lower statistical valuation reference.
That calls for an adjustment in expectations—not an emotional reaction.
Our attention is focused on:
- Selling rallies: Looking for opportunities to advance marketing on retracements toward previous highs.
- Capturing carry: Evaluating futures and HTA rolls alongside basis appreciation and storage costs.
- Managing existing protection: Considering opportunities to capture gains in long puts while maintaining an appropriate downside floor.
- Maintaining upside flexibility: Evaluating limited-cost call ownership where appropriate.
- Updating our statistical framework: Publishing the old-crop models and incorporating monthly dynamic adjustments.
These are different decisions, but they serve the same objective: improving the overall value of the crop through a coordinated marketing process.
Grain Marketing Thought
A good marketing plan must be willing to change when the evidence changes.
For much of the growing season, we’ve been working with a relatively supportive fundamental outlook and the possibility of higher prices.
The latest USDA report challenges part of that outlook.
We don’t have to like the new information. We do have to account for it.
At the same time, changing market expectations doesn’t mean changing the rules of our statistical work to produce a more comfortable answer.
We remain consistent in how we measure the market, but flexible in how we respond to it.
That’s an important distinction.
Our methodology provides consistency. Our ongoing evaluation of fundamentals, price behavior, basis, spreads, and risk management positions provides adaptability.
The purpose of the process isn’t to predict every market move correctly.
It’s to help us make better decisions as the information changes.
Have a great week,
Ron Wall