Weekly Grain Update – April 11, 2018

 

4/11/18

No Major Surprises In USDA’s April Crop Report

The USDA was out with its April crop report on Tuesday, and they did not make significant changes to the grain supply and demand tables.  Their slight adjustments were viewed as neutral for corn, slightly supportive to beans, and bearish for wheat.

In corn, they made no changes to the supply numbers.  On demand, they reduced feed usage by 50 M bu down to 5.5 B bu, and they reduced corn used in the food and seed industries by 5 M bu.  When the dust settled, carryout was raised by this 55 M bu up to 2.182 B bu.

In beans, the USDA also did not make any changes to supply and left production numbers the same from last month.  They did increase the crush number by 10 M bu to 1.97 B bu and they also reduced seed and residual by another 5 M bu.  In the end, bean carryout was lowered by 5 M bu down to 550 M bu which is still a large amount of beans, but the reduction was viewed as supportive.

In wheat, the only adjustment was a reduction in wheat used for feed.  The USDA reduced feed usage by 30 M bu.  This change went straight to the bottom line and increased carryout by 30 M bu up to 1.064 B bu, which was viewed as bearish to wheat.  During a time where we have seen our grain markets being significantly pushed around by potential trade wars, a lack of new crop bean acres, and significant corn exports, this report did not shake the market much at all.

Cold Weather, Slow Planting, and Trade Disruptions

There is more and more concern developing about the slow start to US corn and bean planting.  Much of the Midwest is still covered by snow, and no where near ready to even think about planting corn yet.  Forecasts are calling for continued cold temperatures for the balance of April.  Obviously, we need more heat, and dry weather in the coming days / weeks to get the majority of the Corn Belt in position to plant corn.  Yes, this is only April 11th.  However, many parts of southern IL are usually planting corn by April 20th, and this will not happen this year, at least it does not appear to be the case.  If the situation does not change, this will likely be supportive to corn and bearish to beans as more beans will likely be planted and less corn.  However, the US farmer has proven time and time again that he has much more planting capacity as compared to previous years to plant massive amounts of corn in short amounts of time, if forced to do so.  We are not in panic mode yet, but the trade is paying attention.

Last week, the market witnessed huge volatility from the potential trade disruptions between the US and China.  Each side threw grenades at each other, but at the end of the day, there was no date on the potential tariffs being enacted.  To me, this is negotiating 101.  Hit your opponent with a big thump, make him realize you are serious and won’t back off, call his bluff, and see how he reacts.  You don’t put any time limits on the deal, but it shows the opponent what we could do if forced into a corner, and it shows him that we are very serious about this matter.  It also shows that the US is operating with a strong hand and will not be bullied into something that is not good for us.  Well, we will see how this tactic eventually works out, but we saw early indications yesterday that the Chinese might be the first to make concessions.  Chinese President Xi is looking to open up some of his markets to the outside world, starting with cars.  We will see how the ags are implicated, but one thing is for sure, they still need to buy some beans from the US.  On top of this, their 25% tariff will likely crush their internal soy users.  These internal pressures in China are probably starting to mount, and this is likely why China threw out the first olive branch.  However, we have been here before.  Let’s see what actually gets accomplished before we make assumptions on what will happen.  Stay tuned.

The bean basis in Brazil jumped massively on Thursday last week when the rhetoric between the US and China was at the high point.  If China would not buy beans from the US, that means they would only buy them from Brazil, and the soy market in Brazil proceeded to ramp up by $1 – $2 per bushel in short order.  And since Brazilian beans now became the most expensive beans in the world, everyone was coming to the US to buy beans for later in the year.  As a result, the bean basis in the Gulf started to work higher, and we saw the Gulf bean basis improve 30 to 40 cents in very short order, as a result.  Since Friday, all of these bean markets have cooled down, but this gives you a sense of how our markets react to changing demand due to politics.  The nearby bean basis has firmed a bit.  My guess is that we will continue to see bean basis remain firm on the front end.  Time will tell whether this will continue, or not.  It will largely depend on whether the US and China can work out their differences without a full-fledged trade war.

Targets Produce Success and Protection For Your Farm

These types of scenarios push the market around like a yoyo and produce unprecedented volatility.  However, volatility can be your friend if you have a solid marketing plan and know how much and at what price you feel comfortable selling when the right opportunities present themselves.  If you are not working with one of our grain originators today, please give us a call.  We will gladly sit down with you to create a plan and help you protect your farm.  For a list of our grain originators and the one closest to you, please click here.  These types of volatile markets are a grain marketer’s dream.  The volatility present selling opportunities that are very short lived.  For the disciplined marketer, who knows exactly what commodity he needs to sell and at what level, this is a perfect scenario.  You simply place target orders in our system and at 3 am in the morning next Thursday while China makes an announcement when we are all sleeping, the markets ramps up, hits your target, locks in your contract price, all automatically while you are in bed.  How fantastic is that!  I encourage all of you to start using our online target system.  Its free, easy, and will protect your farm.  Please click here for more information.

New Arrive Delayed Price Rates have Been Reduced

Effective March 20th, we have reduced our Delayed Price rates for new arrive corn and beans into Readfield and Center Valley.  These rates are for new arrive bushels only, and the rate will be in effect until Oct 1st 2018 when new crop storage rates will go into effect.  The new Delayed Price rate is now 60 days FREE, and then 3 cents flat per month thereafter.

We have also updated our web site with the grain storage options that we offer at the Co-op.  Please click here to see what storage options exist for our patrons, and to see what option is the best fit for you.  Many of you have interest in using Delayed Price as an economical way to store your grain.  However, many of our patrons have had questions regarding Delayed Price and how it is different compared to Open Storage.  We have created an information sheet that compares Delayed Price to Open Storage, and lists every advantage and disadvantage of the program.  I encourage all patrons to read this and it is very informative and will help you to understand our program.  Please click here to see this comparison of Delayed Price to Open Storage.

5,000 bu Condo Space For Sale

We have a patron who wants to sell 5,000 bu of Condo Space.  This is also known as our Long Term Storage Agreement.  We have listed this on our web site.  If you are interested, please click here.  Please call the number listed and talk to Todd.  He will inform you of all the details.  In the future, this site on our web page will be updated with buyers and sellers of Condo space for our co-op.  If you own Condo space and would like to sell, or if you would like to buy Condo space, please let us know and we can post your information for you.  We want to make this a useful site to trade Condo Space.

Deadline Approaching For New Crop Average Price Contracts – Have You Enrolled Yet?

We are now enrolling bushels into our new crop Average Price Contract which is for new crop grain that will be delivered during this fall.  This is a cash contract and will use a 10 week period to average the price.  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 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.

What Are The Charts Telling Us?

Here are the support and resistance levels for cash and new crop grains.  These are all futures levels as traded at Chicago:

Cash Corn – May 18 Corn Futures – Support at $3.80, Resistance at $3.95, Place Targets at $3.90

New Corn – Dec 18 Corn Futures – Support at $4.05, Resistance at $4.16, Place Targets at $4.12

Cash Beans – May 18 Bean Futures – Support at $10.35, Resistance at $10.82, Place Targets at $10.72

New Beans – Nov 18 Bean Futures – Support at $10.35, Resistance at $10.60, Place Targets at $10.55

New Wheat – July 18 Wheat Futures – Support at $4.89, Resistance at $5.31, Place Targets at $5.23

To see where grain futures are currently trading, please click here.

As always, if I can help you with anything, please call me at the grain office in Readfield at 920-667-4955, ext 2 or send me an email at marcus.cordonnier@chsinc.com.

Marcus Cordonnier

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