Weekly Grain Update – April 5, 2018

4/5/18

USDA Reports, Tariffs, and Volatility

There has been several items that have / will push our grain markets around as of late.  These have been:

  • The USDA Prospective Plantings Report and March 1st Grain Stocks released last Thursday
  • The Retaliatory Tariffs placed on US products by the Chinese
  • The April USDA monthly grain report to be released on Tuesday next week

 

Let’s take a minute and break these all down.

Last Thursday, the USDA gave us its prediction of how many acres of corn, beans, and wheat the US farmer will plant this spring.  Last year we planted just over 90 M acres each of corn and beans and just over 46 M acres of all wheat classes.  The total of these acres planted last year add up to 226.3 M acres.  Before the report, the market had expected that we would plant 88-89 M acres of corn and 91-92 M acres of beans.  This would be the first time that the bean acres in the US would naturally be bigger than corn acres.  Well, the government shocked the market with its acreage prediction on Thursday.  It pegged corn acres at just over 88 M, beans at just under 89 M, and all wheat acres at 47.3 M.  The total of all of these is 224.3 M acres of corn, beans, and wheat.  After these numbers were released, there was a lot of “head scratching” going on as the trade could not figure out where the additional 2 M acres went to.  The trade could accept the corn acreage prediction, but it was shocked at the bean acreage number at 89 M.  In fact, many still believe that the bean number is not right, and when the dust settles after planting this spring, the bean acres will be larger than this.  Also, when hard times fall on the ag community, the farmer tends to plant fence row to fence row to maximize revenue generation.  Why would he just let 2 M acres sit idle?  Something is not adding up.  However, these are the numbers the trade is forced to deal with, and we won’t know the final acreage numbers until the June 30th numbers are included in the July 12th monthly crop report.  Stay tuned.

The other piece of information from last Thursday’s report was the March 1st grain stocks.  These numbers gives the trade and indication of what was produced last fall and also how much has been used during the first ½ of the crop year.  Last year, the March 1st corn stocks were, combining both on farm and in commercial storage, were 8.622 B bu, beans were 1.739 B bu, and wheat stocks were 1.659 B bu.  The report on Thursday pegged March 1st 2018 corn stocks at 8.888 B bu, beans at 2.107 B bu, and wheat at 1.494 B bu.  The story that nobody is talking about, and under the radar due to the acreage surprise, is the massive amount of corn and beans in the country left over from this fall’s huge harvest.  Either the final corn and bean numbers were higher than they originally thought, or usage is less.  Both the corn and bean stock number this year are a record, and they have NEVER been this big before in history.  At some point, the market will be forced to deal with this, but it is not looking at it today.

In the mean time, the market’s reaction to the lack of new crop bean and corn acres was extremely positive to grain futures at 11 am last Thursday.  As soon as the numbers were released, beans shot up 25 cents, corn traded 11 cents higher, and wheat moved 15 cents higher.  The market just could not believe the lack of bean acres and as a result, it needed to “buy” more new bean acres.  But as beans rallied, corn and wheat followed suit.  At the end of the day, beans closed 33 cents higher, corn closed 14 higher, and wheat closed 16 higher.  A tremendous amount of new crop grain was purchased on Thursday by the grain trade as targets were being fill continuously all day.  The market closed on a very firm note, and this strength carried over into Sunday night’s opening, where more and more selling occurred as the market made new highs around midnight.  December corn futures made a new high at $4.16 and November bean futures made a new high at $10.60.  Targets were being filled left and right, and the farmer was protecting his farm revenue.  We had a nice pop in futures and many were taking advantage of this opportunity like they should have.

We have been saying for weeks that trade relations with the Chinese have not been on the kindest of terms as of late.  It started with the Trump Administration’s tariffs on steel and aluminum coming from China.  All total, there was over 100 items on our list worth about $50 B in market value.  This is all due to the huge trade deficit that we have, and the administration is trying to level the playing field.  As you could have guessed, the Chinese did not like this, and the equity and grain markets have been on edge lately because we know the Chinese would fire back with some sort of retaliation.  We knew it would happen, but just not sure what and when.  Well, we got our answer at 4 am Wednesday morning.  The Chinese came out with their own list of items that would be taxed.  Included was soybeans, corn, milo, beef, pork, automobiles, planes, and many more items.  The Chinese would include a 25% tariff on these items coming from the US.  We all know how the Chinese buy our beans.  They have a huge appetite for beans and even though they have been buying the great majority of them from Brazil, they still must come to the US for 30% of their soybean needs because Brazil cannot totally satisfy their needs.  Thus, the bean basis in Brazil has skyrocketed higher, and this strength in bean basis there is starting to cause the basis at the Gulf to firm as well.  At the end of the day, if the Chinese completely take every excess bean out of Brazil, the normal customer that usually bought beans from Brazil will likely need to come to the US to get his beans now.

So, instead of selling our beans to China, we will be selling our beans to many different countries that used to buy them from Brazil.  This is an interesting development, and no one is sure what the exact end result will be.  However, once this news broke during the early morning hours Wednesday morning, as you could have guessed, our grain markets were just pounded lower.  Beans crashed 55 cents lower and corn was down 20 cents.  All of a sudden, the market is wondering if we will have a solid demand for US beans if the Chinese don’t buy them.  The first reaction was the worst, as the markets closed Wednesday much off of their lows, but there is still a huge amount of uncertainty in the market.  Stay tuned.  Once this news broke, December corn traded down to $3.96 and November beans traded down to $9.97 after making a new high at $10.60 just 2 days earlier.  This is the definition of volatility, and why we encourage all of you to use targets to take advantage of these pops in the market.  For more information on how to use our online target system, please click here.

The USDA will release its April crop report at 11 am on Tuesday next week.  In light of the recent developments, these numbers might not have a huge impact on grain futures, but it is another report that can push the markets around.  The USDA will give us an updated supply and demand table for the grains and we will get updated carryout numbers for each.  In light of the huge March 1st stocks numbers listed above, it will be interesting to see if corn or bean carryout grows from last month.

What Are The Charts Telling Us?

Looking at the charts today, all grains made a fresh high on Sunday night, and then made fresh lows on Wednesday after the Chinese tariff news broke.  We now have very wide support and resistance levels to work with.  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 $3.72, Resistance at $3.92, Place Targets at $3.88

New Corn – Dec 18 Corn Futures – Support at $3.96, Resistance at $4.16, Place Targets at $4.10

Cash Beans – May 18 Bean Futures – Support at $9.83, Resistance at $10.60, Place Targets at $10.40

New Beans – Nov 18 Bean Futures – Support at $9.97, Resistance at $10.60, Place Targets at $10.35

New Wheat – July 18 Wheat Futures – Support at $4.59, Resistance at $5.09, Place Targets at $4.95

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

Still Own Old CORN?  Tired Of Paying Storage?  Check Out Our Cash Plus Contracts

Do you still own old corn in the bin or on Delayed Price at the elevator?  Do you need the money now and tired of paying storage?  Please consider our Cash Plus contracts.  These contracts will allow you to sell corn today with a 13 cent premium added to the cash price in exchange for an offer to sell new crop corn futures around $4.25 if on Nov 14th, the December ’18 corn futures close at or above this level.  If futures close below this level, you get to keep this entire premium, and you don’t have any other obligation.  So it is a win-win for you.  You get to keep the 13 cent premium paid to you NOW on top of the cash price, you stop the storage charges, if hauling from the bin you get to haul them now, you create cash flow now, and if on Nov 14th, depending on what December corn futures trade, you might be able to keep this entire premium free and clear.  The worst case is that you would have the same bushel commitment in a new crop offer where December corn futures were locked in at the $4.25 level.  Taking off the basis of 40 cents under the December futures for delivery into Readfield, you would have a new crop corn contract at 4.25 – 40 = $3.85  The worst case is that you would have new corn sold at $3.85 for Oct / Nov ’18 delivery into Readfield or Center Valley.  This is a great price considering our posted new crop price is at $3.71 today.  Please check this out.  We have been writing many of these contracts as of late, and they work really well.

Have You Sold New Beans Yet?  Make Values Even Better With Cash Plus Contracts

If you still have new beans to sell, please check out our Cash Plus Contracts.  We can add a premium to your new crop bean sales price in exchange for an offer to sell more new beans if November Bean futures close above a certain level on Oct 24th.  These contracts will allow you to sell new beans today with a 29 cent premium added to the new crop cash price in exchange for an offer to sell the same quantity of new crop bean futures around $10.65 if on Oct 24th, the November bean futures close at or above this level.  If futures close below this level, you get to keep this entire premium, and you don’t have any other obligation.  So it is a win-win for you.  You get to keep the 29 cent premium paid to you on top of the current new crop bean price, and if on Oct 24th, depending on what November bean futures trade at the close on this date, you might be able to keep this entire premium free and clear.  The worst case is that you would have the same bushel commitment in another new crop sale where November futures were locked in at the $10.65 level.  Taking off the basis of 69 cents under the November futures for delivery into Readfield, which is our current posted new crop bean basis, you would have a new crop bean contract at 10.65 – 69 = $9.96  The worst case is that you would have another set of new beans sold at $9.96 for Oct / Nov ’18 delivery into Readfield or Center Valley.  This is a great price considering our posted new crop price is at $9.60 today.  Please check this out.  We have been writing many of these contracts as of late, and they work really well.  Please click here to see our current cash grain bids.

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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