Weekly Grain Update – February 6, 2018

2/6/18

USDA Report on Thursday, Feb 8th At 11 AM

The USDA will be out with its February crop report on Thursday this week.  Usually, this report is not a market mover, but anything is possible.  On corn, there is a decent chance that corn ending stocks from this year could be reduced due to very good ethanol production and decent corn exports as of late as the US has the world’s cheapest source of corn.  Corn exports last week amounted to just under 73 M bu which is very good and our window of opportunity is now for another 3 months until the South American corn harvest is brought to market.  Additionally, the market is concerned about how much corn production is being lost in Argentina as this country suffers from dry weather.

Concerning beans, the market is expecting higher bean ending stocks due to lower exports.  Many are expecting bean ending stocks to grow as high as 500 M bu for the ‘17/18 crop year.  This year’s bean exports continue to lag last year’s exports significantly, and this is contributing to the larger ending stocks.  The market is also looking at some huge production potential in Brazil, even though the yields in Argentina will be cut due to the drought.  However, Brazil’s bean production could more than offset the Argentina short fall.  The other issue is the increased bean acres planted in the US this spring.  There is a good chance that the US farmer will plant 2 M extra acres of beans this year from 90 M acres last year to 92 M acres this year.  This will just add more beans to an already heavy bean market.

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Weekly Grain Update – February 1, 2018

 

2/1/18

Is The Rally Over?  Did You Take Advantage Of This Selling Opportunity?

We have witnessed some very exciting grain markets over the last week which have given us some extraordinary opportunities to lock in premiums for cash as well as new crop grain.  Yesterday, we did see a pull back and the weakness continues today.  It was only 2 months ago when many of you were hoping and praying for $3.00 cash corn and $9.00 cash beans to be able to sell across the scale at harvest time.  Today, we can lock in new crop corn, bean, and wheat contracts which are roughly 50 cents higher on these, and they deserve serious consideration.  This is an awesome opportunity for all of you to start locking in new crop levels for next harvest if you have not done so already.  Your banker will love you, and you will add a nice layer of protection to your farm revenue.

There are a number of reasons why the market has rallied over the last two weeks.  However, now is NOT the time to get bullish.  This is the time to take advantage of what the market is given you and protect your farm.  The world is still sitting on a huge amount of grain, and the market can reverse direction at any time.  Here are the reasons why the market rallied over the last 2 weeks, and also why this market can go backwards very quickly:

Bullish Factors:

  • Dryness in Argentina is reducing corn and bean yields there
  • Northern Brazil is too wet which is delaying harvest
  • Poor wheat conditions in the US plains
  • Funds are covering some of their short positions
  • Funds are buying commodities as a hedge against inflation
  • The US Dollar is very cheap which is promoting solid exports
  • Funds are selling stocks and buying commodities
  • US corn is the cheapest in the world

 

Bearish Factors:

 

  • Brazil has a very good crop of corn and beans in their southern and central regions
  • The current rally is destroying export competitiveness which can lead to a sharp pull back
  • Brazil currently has the cheapest beans in the world
  • Concerning wheat exports, the US is not competitive
  • The US farmer sold massive quantities of grain over the last few trading days
  • Futures are now at strong resistance levels
  • Argentina will have a lack of extreme heat to further stress crops, even though they are dry
  • The new 11-15 day forecast in Argentina is calling for significant chances of rain
  • What Argentina is losing in crop size, Brazil could easily be producing
  • Once bean harvest starts in Brazil in a week or 2, the bean market could run out of steam
  • NAFTA talks have stalled
  • The world is still sitting on huge grain stocks

 

Weather markets are exciting and volatility most always ramps up.  With volatility comes opportunity.  Brazil will start cutting beans in the next week or 2, and once this happens, much of the fuel that has been creating this rally will go away.  Time will tell whether the yields in Argentina are as bad as the market has feared.  With the new genetics of seeds, corn and beans can still produce amazing quantities of grain even when being starved for water.  It will be interesting to see how Argentina’s final numbers pan out.  Still, the threat of lower yields is what has caused this rally.  Many times the perception of the problem is worse than the actual problem once all of the facts are known.  This has been an incredible pricing opportunity for all of you to be able to sell new crop corn over $3.50, new beans over $9.40, and new wheat over $4.00.  I hope all of you have at least started selling new crop at these levels this week.  If you would like to place a target to sell grain, you can either call us or place your own target on our Online Target Offer system.  It is easy, free, and an awesome way for you to protect your farm.  Please click here for more information.

 

What Are The Charts Telling Us?

Looking at the charts today, all grains made a fresh high on Tuesday this week.  Since then, we have been pulling back.  I get the sense that the market is due for a correction as all grains are seriously over bought.  Here are the support and resistance levels for cash and new crop grains.  These are all futures levels as traded at Chicago:

Cash Corn – March 18 Corn Futures – Support at $3.58, Resistance at $3.62, Place Targets at $3.60

New Corn – Dec 18 Corn Futures – Support at $3.90, Resistance at $3.94, Place Targets at $3.92

Cash Beans – March 18 Bean Futures – Support at $9.80, Resistance at $10.05, Place Targets at $10.00

New Beans – Nov 18 Bean Futures – Support at $9.96, Resistance at $10.17, Place Targets at $10.12

New Wheat – July 18 Wheat Futures – Support at $4.62, Resistance at $4.845, Place Targets at $4.80

For more information on where the Chicago Grain Futures are trading, please click here to get a current futures quote.

 

Introducing New Average Price Contracts

We are always looking for unique ways to reduce your risk and help capture market opportunities when they appear.  I am happy to introduce two new Average Price Contracts that we are now offering.  One is for old crop grain that you are storing in the bin, and the other is for new crop grain that will be delivered during this fall.  The old crop averaging contract will be for corn, beans, or new crop wheat for delivery during July ’18 into our facilities or direct into your local corn processor.  The new crop contract will be for corn or beans for Oct / Nov ’18 delivery.  Both contracts are a cash contract and use a 10 week period to average the price.  On the old crop contract, we will average the price from March 14th through May 16th, and the timing of the new crop contract will be May 2nd through July 5th.  We will simply average the closing prices each Wednesday during these periods, pricing 1/10 of your contracted bushels each week during the period.  At the end of the period, we will simply average the prices together.  There is no minimum quantity and the best part of these contracts are that they are FREE.  There are no fees associated with these averaging contracts.

The nice thing about the averaging period on the old crop contract is that you are locking in the market carry to July on your old crop bushels.  For old crop bushels, the earlier you can sell the bushels in the crop year for delivery later in the crop year, the better.  You will capture more market carry and put it in your pocket.

Additionally, the dates associated with the new crop pricing period of May 2nd to July 5th is normally a very good time to sell new crop grain because the market is dealing with planting problems and then dealing with dry weather problems somewhere in the Corn Belt.  When problems surface, the market puts more risk premium in the futures, and you will be participating in the market to capture these premiums.  If there are no problems, the market usually drifts lower after the July 4th holiday, making the timing an excellent part of this new crop average contract.    These contracts are simple, easy to understand, and they work.  Every farmer should put a decent amount of grain into these contracts to help protect your farm.  For more information on these exciting new contracts, please click here.

 

CHS Will Host Grain Marketing 101 Workshops On Feb 13th

We are once again hosting a Grain Marketing 101 Workshop for our customers who wish to learn more about grain marketing, the contracts we offer, and how to improve the profitability of your grain operation.  Many have asked us to have these meetings again, as they were a huge success this past summer.  Anyone can attend, and they are free to the community.  We will go through the many different contracting options that we provide and examine the markets in which they work the best.  Now is the time to brush up on your grain marketing skills as outside activity is slow and it is a good time to learn more about what options are available to you.  We will be hosting two meetings on February 13th.  One at 10 AM in New London and at 6 PM meeting in Amherst.  Please RSVP by February 9th to the New London Office at 920-982-1111 or to anne.moore@chsinc.com.  Please click here for more information.

As always, if I can help you with anything, please call me at the grain office in Readfield at 920-667-4922, ext 2 or send me an email at marcus.cordonnier@chsinc.com.

Marcus Cordonnier

Weekly Grain Update – January 24, 2018

 

1/24/18

January USDA Report Very Bearish, Yet We Rally

Despite the bearish fundamentals from the USDA January crop report, grain futures have been well supported since the numbers were released.  This strength has been most noticeable in soybeans where we have rallied significantly in the last 6 trading days.  Most of this bean strength is due to Argentina being dry as it nears is critical pod filling stage on its bean crop in the field.  Argentina continues to struggle with a lack of rain and higher temperatures which are reducing the bean crop there.  The market is very nervous about the dry Argentina weather, and is watching it very closely each day.  Soybean meal has been affected the most by this situation as Argentina is a huge supplier of bean meal on the world stage.  Any weather related production shortage will have a direct impact on the bean meal market.  Thus, traders are putting a big risk premium in the price of bean meal in the last 10 days as values have surged considerably.

Argentina also produces a considerably amount of corn with normal corn production around the 55 MMT level.  With the dryness this year, the size of the corn crop has dropped to 52 MMT, and this is also supportive to corn futures.  As a result, some large specs have decided to cover a portion of their huge short position.  Going back to mid last week, the funds held a record short corn position of just under 230,000 contracts short of corn futures.  This information from Argentina was enough to spook some to cover some of their short positions.  Additionally, the price of US corn is now the cheapest corn in the world.  This is allowing our corn exports to finally pick up, and last week we saw a huge corn export number of nearly 75 M bushels which sparks signs of optimism in the corn market.

In addition to the dry weather situation in Argentina, other factors have surfaced that is adding support to the bean markets.  The NOPA weekly bean crush numbers were released last week and pegged crush at over 166 M bushels.  This is a huge number and a record.  Part of the reason is the strong price of bean meal which is causing crushers to crush for the meal, not for the oil, and their profitability is very much tied to the price of bean meal.  We can see this through the current bean crush margin of $1.16 per bushel, which is very good, and another record.

Is The Bean Rally Over?

Now, the question becomes how far will we go?  We have seen a nice pop in corn and beans, but how much is enough?  Is it time to take our profits to the bank before the market turns around and leaves us hanging with no support?  Lets look at the bean market.  Generally, a market will retrace 50 to 62% of a previous move before resuming the previous trend.  March bean futures made a high on December 5th at $10.27.  Then, the bean market crashed and it made a low on January 12th (report day) of $9.44.  Since then, we have rallied.  For a normal and healthy correction, the market needs to move back into the “trading window” of a 50 to 62% retrace before resuming the previous trend.  In this case, March beans need to trade up to the “trading window” of $9.85 to $9.95 before meeting this threshold, and then the market will likely move lower, and possibly significantly lower.  What was the high of March bean futures yesterday?  It was $9.88 ¾.  And now what is the bean market doing overnight?  It is down currently.  If you still own old beans, any you need money for a land payment, I would seriously consider selling your old beans, and remove the risk from your position.  One can certainly build a case for weaker bean prices in the near future.

Still Own Old Beans?  The Cash Price Still Not Good Enough?  Cash Plus Is The Answer

We are currently bidding roughly $9.14 (68 cents under March) for cash beans delivered into Readfield.  If this level is still not enough to satisfy you cash flow demands, you should consider our Cash Plus Contract.  This contract will allow you to receive a 25 cent premium over the cash bid, and paid to you today.  In exchange for this premium, you will give us an offer to sell the same quantity of new crop November bean futures at the $10.40 level if on October 24th the price of November soybean futures closes at or above the $10.40 level.  This is a win-win for you.  You will be paid a 25 cents premium now on your cash beans.  If on October 24th, November bean futures close at or above $10.40, you will have the same quantity of beans sold at $10.40 futures, less the basis of 69 cents under November (this could vary slightly), equals a new crop bean contract at $9.71 for Oct / Nov ’18 delivery into Readfield or Center Valley.  This is a very good price considering our posted new crop bean bid is $9.30 and represents a 41 cent premium over our posted new crop bid.  If on Oct 24th, November bean futures close lower than $10.40, then you keep your 25 cent cash premium, and have no other obligation.  This contract has been very popular as of late, and if you still own old beans, you should seriously consider it.

Raising Beans This Year?  You Should Consider Forward Contracting New Beans At These Levels

Are you planning on growing more beans and less corn this year?  If so, you are not alone.  I have talked to many farmers across the Midwest who are saying the same thing.  The input costs are so much cheaper with beans and they can cash flow at these prices where corn is not as profitable at these levels.  I can make a case where we can plant 92 M acres of beans this year due to this scenario.  If you combine this with the fact that the bean yields in Brazil are just huge, and probably a record, South America will likely not help our cause long term.  Yes, Argentina is dry, but Brazil’s area is double the size of Argentina, and their weather has been nearly perfect all year with ample amounts of rain.  Brazil’s bean production will more than offset the Argentina shortfall.  If all of this happens, and the US plants 2 M acres of beans, and bean carryout is already over 500 M bushels, this will build a scenario of significantly lower new crop bean prices this fall.  However, the market is giving us an opportunity to sell new crop beans into Readfield or Center Valley at $9.30 today.  You should be taking advantage of this level and help protect the revenue on your farm.  We have bought a tremendous amount of new beans this week at the $9.25 to $9.35 level.  This is a great level to start, and reward the market if it should rally more.  I have been recommending farmers to sell this $9.30 level for this fall, and then place targets at 15 cents higher to sell another round.  Placing targets is an easy and cost effective way for you to protect your farm.  We can place them for you, or you can enter them yourself by clicking here.

CHS Will Host Annual Meeting On Monday Night

CHS will be hosting its annual meeting on Monday January 29th at 6 PM in New London at Crystal Falls.  If you would like to attend, tickets can be purchased at Readfield, Center Valley,  Weyauwega or New London.  The tickets cost $7.50 each and they need to be purchased before the meeting.  We will have a director election this year in which all members can participate.  A meal will be served at 6 PM with the meeting to follow.  The Board will be considering to change the districting structure of the co-op, and would like your input.  Instead of having directors report from a northern and southern district, the issue is whether to have all 7 directors be elected from and represent the “at large” district.  Please come and voice your support and or concerns.  For more information, please click here.

CHS Will Host Grain Marketing Workshops On Feb 13th

We are once again hosting a Grain Marketing 101 Workshop for our customers who wish to learn more about grain marketing, the contracts we offer, and how to improve the profitability of your grain operation.  Many have asked us to have these meetings again, as they were a huge success this past summer.  Anyone can attend, and they are free to the community.  We will go through the many different contracting options that we provide and examine the markets in which they work the best.  Now is the time to brush up on your grain marketing skills as outside activity is slow and it is a good time to learn more about what options are available to you.  We will be hosting two meetings on February 13th.  One at 10 AM in New London and at 6 PM meeting in Amherst.  Please RSVP by February 9th to the New London Office at 920-982-1111 or to anne.moore@chsinc.com.  Please click here for more information.

As always, if I can help you with anything, please call me at Readfield.

Marcus

Weekly Grain Update – January 17, 2018

1/17/18

USDA Confirms Huge Grain Supply

On Friday, the USDA released its January crop reports and confirmed the huge grain supplies across the globe.  Starting with corn, they raised the final yield on the crop by 1.2 bpa up to 176.6, which is a new record and larger than expected.  However, they did reduce harvested corn acres by 400,000 acres down to 82.7 M and they did reduce planted acres down by 200,000 acres down to 90.2 M.  On the demand side, they left exports and corn used for ethanol unchanged from last month.  They also pegged the December 1st corn stocks at 12.516 B bu which was larger than expected.  When the dust settled, corn ending stocks increased by 25 M bu up to 2.477 B bu.  This is a tremendous amount of corn and March corn futures made a new low on the news, trading down to $3.45 ½.

On beans, the situation was not quite as bearish.  The USDA left the harvested acres unchanged, but reduced the yield by .4 bpa down to 49.1 bpa.  They did increase the amount of beans used for crush by 10 M bu but they did decrease the amount of beans exported out of the country by 65 M bu down to 2.160 B bu.  Even though we did see a yield reduction and an increase in crush, these gains were more than offset by the decrease in exports.  Dec 1st bean stocks came in at 3.157 B bu, which was slightly supportive.  When the dust settled, bean ending stocks increased by 20 M bu up to 470 M bu.

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Weekly Grain Update – January 11, 2018

1/11/18

Major USDA Report on Friday

The USDA will be out with its January crop report at 11 am on Friday.  This will be a significant report and it usually causes a big move, one way or the other, for grain futures at Chicago.  On Friday, the USDA will report Dec 1st grain stocks, update the monthly grain supply and demand tables, and also update the trade on wheat acres planted.  This is a big report with a great amount of information being released.  There is a good chance that the market will be surprised by something, and thus it is likely that the market will gyrate significantly after the numbers are released at 11 am on Friday.  Many feel that the corn yield could grow slightly and many feel the current corn export projection is too high and it needs to be lowered.  If either one of these scenarios happen on Friday, this will cause the already massive corn carryout to grow larger, and this will put downward pressure on the market.

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Weekly Grain Update – January 3, 2018

Cold Start to the New Year

As we start a new year, the market is dealing with several items that have moved to the surface.  First is the extreme cold temperatures across most of the Corn Belt.  This has the market worried about the winter wheat crop and how much damage will be created since many of the acres in the US do not have a snow cover to add protection.  For months, the wheat market has been in a downward slide.  For now, it looks like we might have hit solid support, and are bouncing back.  For those of you who have wheat planted, I would keep my eye on new crop wheat values in the coming weeks.  I believe the wheat market has shifted, and is now on an uptrend, and could move significantly higher.

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Weekly Grain Update – December 18, 2017

 

12/18/17

USDA Report

The USDA released its December crop report last Tuesday, and it adjusted several items on the supply and demand tables.  On corn, the bright spot was a 50 M bu increase in corn used in ethanol production.  Last weeks ethanol production was the second largest on record as the relative lower cost of corn is stimulating additional usage.  Although true, the ethanol industry is struggling with slimmer margins than in the past.  Current ethanol margins were 6 cents per gallon last week, and the average conversion rate now is one bushel of corn will produce 2.82 gallons of ethanol.  The USDA left exports unchanged at 1.925 B bu.  Even though corn exports have really been struggling as of late, there are signs that this situation could be changing.  Last week, the US did sell one cargo unit of corn to China, and Morocco and Mexico have also been recent buyers.  As corn makes new lows, our corn becomes more and more competitive on the world stage.  When the dust settled, corn ending stocks were reduced by 50 M bu down to 2.437 B bu.  Even though we are moving in the right direction, this is still a huge amount of corn that will continue to weigh on the market.

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Weekly Grain Update – December 12, 2017

 

12/12/17

The USDA will be out with its December monthly crop report on Tuesday at 11 am.  As the old saying goes, “big crops generally get bigger,” there is a decent chance that both corn and bean carryouts could grow slightly after the numbers are released.  Why?  Because our exports are lagging the original projections from the USDA of 1.925 B bu of corn exports and 2.25 B bu of bean exports.  When the grain does not leave the country, its starts to stack up in the interior.  The Chinese have been aggressive buyers of US beans, and we have made recent corn trades with Mexico and possibly the Chinese as well.  However, the current low price of corn and beans are starting to stimulate demand, and we are getting to the time of year where Brazil can no longer be the lowest cost world supplier of corn.  The second best option is the US and I expect the corn export pace to ramp up considerably next month.

One item that might offset the lagging exports is the huge quantity of corn being used for ethanol this year.  For several years, the amount of corn used for ethanol production was at the 5.0 B bu level and it stayed relatively constant.  However, as the world becomes more comfortable using the 15% ethanol blend in their gasoline for their cars, or burning E85 which is 85% corn ethanol, the amount of corn consumed by the ethanol industry has grown in recent years.  In 2016 we used 5.224 B bu of corn for ethanol, in 2017 we used 5.439, and this year I believe it will be over 5.5 B bu when the dust settles.  This increase in ethanol production will offset the lagging exports to a degree and might leave corn ending stocks unchanged.  We will all find out at 11 am today what the government’s opinion is on these categories.

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Weekly Grain Update – December 5, 2017

Soybean Influences

The market is becoming very concerned about the weather in Argentina.  Brazil was plagued with wet weather several weeks ago, but that situation has improved.  Argentina is dry, and the market is adding risk premium due to this situation.  The world is counting on a large bean harvest from Argentina.  If this dry weather continues, the world bean carryout could be cut quite significantly.  However, it is early in their growing season, and there is time for the situation to improve.  Friday was the first day of the month and the funds decided to buy bean futures and add to their existing long bean position.  On Monday, they continued to buy bean futures and pushed beans higher through the day.  It is normal for beans to rally during the Thanksgiving holiday, so the strength in beans was not unexpected.

It is interesting to see that even though beans and wheat rallied significantly on Monday, corn could do very little amongst the strength in the other grains.  Corn is still being weighed down by the huge carryover of roughly 2.5 B Bu.  In addition, corn is struggling to rally as there are a huge amount of farmer sell orders just above the market.  Any attempt for corn to rally and these orders squash any rally attempt.  The farmer generally sold his beans for cash flow at harvest, but is storing his corn in any where possible.  Our US corn exports are also struggling to keep pace, and it is very likely that the USDA will need to lower corn exports by approximately 100 M bu on the next Monthly Crop Report on December 12.  If this happens, we could see corn carryout be raised by this same amount to nearly 2.6 B Bu, a truly huge amount of excess corn.

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Weekly Grain Update – November 29, 2017

In A Carry Market

As most of you are now done, or almost done with harvest, I would like to take a minute and start looking at new crop levels for next harvest of 2018.  It is no secret that we are in a carry market with huge amounts of corn and bean carryouts each year.  There is a large quantity of farmer selling orders above the market, and any market rally attempt is quickly stalled by selling orders from the country.  I don’t see this changing anytime soon, especially in the corn market.  The farmer is undersold on corn in a large way, and the market knows this.  This situation creates huge board carries.  This means the market heavily discounts the front end, but rewards the producer for locking in deferred values now.  My guess is that cash corn will stay close to the $3.00 level over time, but the carry will slowly grind out of the market over time.  What do I mean by this?  Let’s go back two months ago.  The cash price for corn delivered into Readfield for July 2018 delivery was roughly a 50 cent premium over the cash price.  Today, this premium has been reduced to only 27 cents.  If we wait another month, it will likely drop to 20 cents, and until we eventually get to almost even money.  The point is that the market is willing to pay you a premium if you are willing to step up and write a contract to lock these premiums in.  However, you only get these premiums if you contract the grain.  If you do nothing, once we get to July, the cash price of corn will be the same as it is today, roughly $3.00, and that entire 50 cent premium has just vanished over time.  This is a text book definition of big carry markets and how the carry gets “ground out” as we move through the crop year.  Big premiums are available for those who take the time, create a plan, and are willing to forward contract their grain.  One cannot receive this big premium by waiting until July 1, and selling cash at that point, but forward contracting those levels NOW for delivery THEN.

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