To fungicide or not to fungicide?

What happened

There are a lot of questions surrounding the application of fungicide this year. Adding another cost is an unpleasant thought for many when the price of corn on the futures market has dropped nearly 70 cents since mid-June, reaching new contract lows. 

As of this writing, December futures are trading near $4.07. Dropping 70¢ may not matter as much if prices started, say, at $5.50. However, with most producers’ breakeven likely above (or well above) the current market price, adding more cost is a variable many will have to consider heavily before incurring. 

The saying goes: “Fungicide doesn’t add bushels; it saves bushels.” Assuming corn is sold at $4 and it costs $30 per acre to apply, is it worth saving 7.5 bushels per acre?

Why this is important

If farmers decide not to apply fungicide, the implication to the marketplace could be significant. Prices have dropped, anticipating a record-yield crop. Yet, we’ve experienced weather struggles during this spring’s planting and significant flooding during June in parts of South Dakota, Minnesota, Iowa, and Wisconsin. All this suggests that, ultimately, the corn yield may not be as high as the market is trading.

In the June WASDE report, the national corn yield is estimated at a record 181 bushels per acre. In addition, when the USDA Acreage report was released June 28, there was a note indicating 3.36 million acres had yet to be planted from May 30 to June 16. Therefore, planted acres are still unknown, as are losses from drowned out areas. If the absence of fungicide application occurs due to cost constraints, this could also suggest a national yield decline. 

From the perspective of value, corn prices are offering excellent opportunity early in the growing season for end users to lock in a price. Buyers may be poised to step up to the plate soon. It appears end users have adopted a buy-only-as-needed approach.

What can you do?

If you buy corn/feed, now is the time to monitor the market very carefully. You have been rewarded by being patient, but don’t assume a big crop is at hand. There is plenty of growing season ahead. Look for signs of a price bottom on charts, especially if word spreads that farmers may be reluctant to apply fungicide. These decisions will be made in the days and weeks ahead.

For corn producers, if you sell crops, consider retaining ownership. For some, storage is not an option and delivery will be at harvest. Consider purchasing call options against previous forward contracts if you make new forward sales.

Find what works for you

Work with a professional to find the strategy or strategies that are best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation and less emotionally charged responses to market moves, which are always dynamic.

Editor's Note: If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: 800-334-9779.

Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy, or discipline will guarantee success or profits. Any decisions you may make to buy, sell, or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of the National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.

About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions.