Weekly Grain Update – February 15, 2018



USDA Increases Corn Exports, Cuts Bean Exports

The USDA released its February crop report last Thursday and showed a tighter supply and demand situation in the corn market, but not so much in beans.  Much of the changes in both markets were due to anticipated exports.  In corn, the USDA raised the exports by 125 M bu up to 2.05 B bu.  Currently, the US has the cheapest corn in the world, and our window of opportunity to supply the world with corn is over the next 4 months until Brazil’s second corn crop is harvested.  We are also seeing a ramp up in corn used for ethanol production, and the demand for DDGS from cattle feedlots is extremely strong since the price of bean meal has spiked up.  China has reportedly cancelled 4 cargo ships of corn due to GMO concerns as trade tensions rise with the Trump administration.  Despite this news, the corn market seems to be getting tighter as time rolls on.  When the dust settled, the ending stocks from the USDA were slashed from 2.477 B bu last month to 2.352 B bu this month.  This is still a huge amount of corn, but it shows how the corn fundamentals are firming.  The cure for cheap prices is cheap prices, and this is what is happening with corn as the market becomes more aggressive to buy new crop corn acres.

In beans, the fundamentals are telling a different story.  Similar to corn, the exports were the main change in the USDA report last Thursday.  Unlike corn, US beans are not the cheapest source of beans in the world.  Brazil is starting to harvest their bean crop and they have they cheapest beans in the world.  Thus, our bean exports are struggling to keep pace, and the USDA backed of bean exports by 60 M bu last week to 2.1 B bu.  The bean fundamentals are quite negative, vastly different from the corn picture.  Brazil’s bean crop is expected to be very good, but Argentina’s yields are anticipated to be reduced by the hot and dry conditions there.  Argentina produces a significant quantity of bean meal for the world, and this explains the explosion in bean meal prices as of late.  However, all of the tightness in the bean situation from Argentina will be mostly offset by the huge bean production coming out of Brazil as their crop is large and expected to get larger as harvest moves north.  The USDA confirmed the negative fundamentals as bean carryout increased from 470 M bu last month to 530 M bu this month.  This is a huge amount of bean ending stocks, and this number looks to grow substantially over the coming months.  By the time summer arrives, we could easily see bean carryout grow to 6-700 M bu, which we have not seen in decades.

Funds Have Covered Massive Short Positions, Pushed The Market Higher In The Process

The USDA has presented a firming fundamental picture in corn, and a weakening fundamental picture in the bean market.  However, much of these weak fundamentals are being over looked by the market due to the hot and dry weather situation in Argentina and the dry weather concerns for the HRW areas in Oklahoma and Kansas.  We are definitely in a weather market today and this means huge volatility and fund short covering.  Coming into February, managed money funds held a massive short position at Chicago, holding roughly a record short position of 230,000 contracts of corn, nearly 100,000 contracts short of beans, and over 140,000 contracts short of wheat.  In the last 2 weeks, much of these short positions held by the funds have been covered, and now they have no short position remaining.  In beans and bean meal, they are going long the market.  So in the last 2 weeks, the dryness situation in Argentina and US plains were enough to spook the managed money folks to bail out of their short position and give us an excellent opportunity to take advantage of a futures rally.  Any time these funds cover a short position, they are buying futures to cover their short.  This buying process is the fuel that propels the market higher and gives all of you the opportunity to sell better prices for cash and lock in great new crop levels.

The problem is that this covering of short positions is coming to an end.  Their short is now gone, and the massive buying due to being stopped out of their short positions is almost over.  The trade will start to focus on Brazil’s great bean yields in the next week, and our fuel for this rally could soon be over.  In addition, one can make the argument that the US farmer could very easily plant 92 M acres of beans in this country due to the lower input costs, and the current difficult farming economy.  The point here is that we will transition from a weather market and this short covering frenzy and begin to focus on the fundamentals once again.  Once this happens, the market will realize that beans are over priced.  If bean exports continue to dwindle, if the US plants 2 M more bean acres, and if the Brazilian bean yields prove to be as good as projected, then the bean market will slide lower and possibly significantly so.  The bean market is not looking at this today.  It is all jacked up about Argentina dryness, fund short covering, and weather.  This will end, and when the market refocuses on the real fundamentals, things will change, and we will have a lower bean market.  You need to do what is right to protect your farm.  Most of you have started to sell new beans above $9.40 cash price for new crop.  I encourage all of you to start if you have not done so already as the market is giving you an early Christmas present.

Weather markets are exciting, and volatility most always ramps up.  With volatility comes opportunity.  Brazil is now in bean harvest, and once this ramps up, much of the fuel that has been creating this rally will go away.  Additionally, now that the funds have covered their short, much of this buying that has propped up this market, will cease.  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 $3.55, new beans over $9.50, and new wheat over $4.15.  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.

Sign Up NOW For New Average Price Contracts

We have 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 or if you wish to sign-up, please click here.

February Results For CHS ProAdvantage Contracts

For those of you who have placed bushels in the CHS ProAdvantage program, we have the updated pricing results for February.  Again, ProAdvantage is our fully managed contracts that we offered during December for patrons who wanted a completely “hands off” approach to grain marketing.  You simply gave the trading professionals at CHS a portion of your production for next harvest, and they take care of the rest.  Behind the scenes they are aggressively buying and selling complex futures and options positions to generate as much profit as possible on your bushels by the end of the program.  The goal is to give you the highest possible futures price at the end of the program as possible by using trading techniques and options that typically are not available to the individual farmer.  The signup period is obviously over.  However, we can see each month how they are progressing, and look at their current values as they trade through the period.  We can also see the percentage of the crop they have sold, which gives you a clue to how bullish or bearish they are.  For those of you enrolled in the program, and you did not receive the results yet, here they are.  This is an interesting read.  Don’t worry if you don’t completely understand all of the information.  If you have any questions about anything, and you want help, please call me and I will explain it to you.  Please click here to see the Feb results.

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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