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.

On beans, the USDA reduced exports by 25 M bu down to 2.225 B bu.  Currently, the rate of bean exports are only 62% of the total year projection, where as we were at 78% a year ago.  The point is that bean exports could be reduced again in future reports.  China remains the biggest buyer of our US beans.  However, Brazil’s beans are the cheapest beans in the world, but they continue to have issues with limited capacity to load vessels at their ports due to the lack of infrastructure.  Although true, the Chinese are spending money on infrastructure through mergers and acquisitions of grain companies, and the result is fewer and fewer loading delays are time moves forward.  We depend on the Chinese to buy our beans.  Once we get to February 1st, the earliest Brazilian beans will start to be harvested again, then our opportunity to supply our beans to the world will come to an end.  When the dust settled, the bean carryout was increased to 445 M bu.

The bean market is still very sensitive to the weather in Argentina.  The forecast is calling for significant rain this weekend with broad coverage throughout Argentina.  It was these forecasts a week ago that caused the bean market to collapse lower.  January beans made a high of $10.15 on Dec 7th, and since that point, the weather forecast turned wetter in Argentina, and futures fell 47 cents down to $9.68 now.  The situation in Brazil is quite different.  Most beans in Brazil have adequate moisture and generally are in good shape.  Time will tell whether Argentina will have more problems with dryness and heat in the balance of their growing season, but today the situation is much better than just a week ago.  This explains why bean futures have relaxed as risk premiums have been taken out of the market.  If problems come back, futures will react accordingly, but the window of opportunity is slowly closing.

Technically, the corn market does not look heathy after making several new contract lows last week.  March corn futures traded down to 346 ½ on Friday and many traders now believe that March corn futures will go where December corn futures went.  This means that March corn futures will drop to the $3.35 level in the near term.  This is not what the bulls want to hear, and if this happens, the basis will be forced to do much of the work.  Corn basis will likely continue to firm if futures remain flat.  That being said, there is a chance that we could see some year end profit taking from the funds who hold large short positions.  In order for these managed money firms to take their profits to the bank prior to year end, they will be forced to unwind their short positions by buying them back.  This buying of futures could prop up futures between now and the end of the year.  As I look at the March corn futures chart tonight, I see support at the $3.465 level and resistance at $3.55

On beans, the market has turned very soft in the last week due to rain falling in Argentina.  As weather reports indicate lower temps and more rain, futures have turned south in a major way, making several new lows this week.  It will take another weather problem in South America in order to see major fund buying return to the market and prop up bean futures again.  As I look at the January bean futures chart, support is at last week’s low at $9.63 and resistance at the $9.81 level.

Do you have beans in the bin or on Delayed Price and missed the selling opportunity earlier this month?  Please look at our Compass Contracts.  They can generate a better price NOW.

Hopefully, most of you took advantage of the strength we witnessed during the first part of December to liquidate bean ownership.  For those of you who missed the opportunity, all is not lost.  With our Compass Contracts, you are still able to collect a big premium now in exchange for giving us a new crop bean offer on new bushels that you intend to plant, but have not sold yet.  This contract is the best of both worlds.  You can collect a big premium now on old crop bushels and lock in a nice price for new crop bushels as well, keeping the entire premium.  If interested, please call us at Readfield and we can explain the contracts to you in detail.  All of you should consider this contract because the new crop bean options are nice and fluffy now, and you can use these premiums to protect your farm.

As a reminder, if you need to sell more grain this calendar year, our cut off is 5 pm on Wednesday December 27th.  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.

Marcus

Leave a Reply

© 2018 CHS Inc.