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.
The market continues to have its eyes focused squarely on the weather in Argentina. Brazil’s weather conditions are generally good with planting nearly complete and soil moisture levels generally good. However, Argentina is dry. Last week’s price explosion in beans was due to these dry conditions in Argentina. We are truly in a weather market due to these conditions. Going back to Monday a week ago, January bean futures ramped up significantly and made a new high of $10.15 due to fresh fund buying associated with dryness in Argentina. However, as soon as the forecast changed towards the end of last week, the bean market tumbled just as fast as it ramped up just two days before. This is a classic weather market, and you better wear your seat belts! Yesterday, the fresh 11-16 day forecast called for much improved chances of rain in Argentina and the funds pushed the bean market much lower. Currently, January beans are trading around the $9.85 level when a new high was made a week ago at $10.15 As you can tell, the market is very sensitive to the weather forecasts for Argentina and the market will react violently higher or lower based on the current weather forecast.
As volatility is ramping up this week due to the weather in South America and due to the crop report today, this is a perfect opportunity to use targets to get a better price for grain on your farm. Volatility is not a bad thing, as long as you can control it, and use it to your advantage. Many times during these high volatile weather markets, opportunities present themselves to sell your grain at a significant premium. However, this opportunity might be at 2 am in the morning while most everyone is sleeping at home, and the opportunity might only last a few minutes. If you place a target for your grain in our system, you have the ability to sell your grain during all hours that the market is trading. The market opens at 7 pm at night, and trades until 1:15 pm the next day. If you place a target on our online system, your order is working continuously during these hours, and if the funds decide to buy futures at 2 am in the morning, you are covered! Our system is easy, free, and will allow you to capture short lived opportunities in the market. For more information on how to use our free online target system, please click here.
As I look at the charts tonight, March corn futures continue to be in a flat trading range with support at the $3.48 level and resistance at the $3.60 level. Yesterday, March corn futures made a new contract low at $3.48 ¼ Technically, anytime a contract makes a new low, this is not a good sign for the future of that market. Something must change to reduce the supply or increase the demand for our corn as it is stacking up everywhere in this country. The future of the corn market depends on what the USDA does today, and how our exports stack up in the coming weeks. The lower futures market is allowing the corn basis to perk up, and now that harvest is over, the basis will be forced to do most of the work to stimulate movement.
Looking at the bean chart, January bean futures are in a slightly upward channel with support at the $9.75 level and resistance at the $10.15 level. Since we are now in a weather market with ramped up volatility, we now have a channel that is 40 cents thick, and wider than normal. January bean futures are currently trading at just over $9.80 It will likely take another weather scare in South America for the funds to push beans back over the $10 level once again. For those of you who have a little time, I would put a target out there in our system (click here) and let it work and do its job. Who knows, you might end up with a present under the Christmas tree.
As a reminder, if you need to sell more grain this calendar year, our cut off is 5 pm on Wednesday, December 27. If you sell grain prior to this time, you will receive your grain funds prior to year end. Unfortunately, if you sell grain after this time, your settlement will occur after the new year starts. Please talk to your accountant and let us know how we can help you.
As always, if I can help you with anything, please call me at Readfield.