Weekly Grain Update – February 21, 2018

 

2/21/18

Argentina & US Plains Still Providing Market Support, Awesome Soybean Opportunity

The hot and dry conditions in Argentina continue to be the main focus of the grain trade as of late.  Argentina did receive some rain over the weekend, but it was not enough to satisfy the bulls.  Argentina affects the bean market considerably as it is a huge exporter of bean meal to the world, and the price of bean meal has sky rocketed higher during the last 3 weeks.  The strength in bean meal has led the charge higher, and beans have followed suit.  To a lesser degree, corn and wheat have trailed in the background, but have started to diverge in the last couple of days.  We are clearly in a weather market for another week or so.  Brazil is now harvesting their bean crop and yields are coming back very good.  Brazil was blessed with very good rains during their growing season, while Argentina was not.  Brazil’s bean production will likely climb to 115 MMT, but Argentina’s bean production is currently pegged at 50 MMT, but could fall to 47MMT or so.  Thus, Brazil’s great yields will mostly compensate for Argentina’s shortfall, but it gives the bulls something to shout about and it has given all of you an awesome selling opportunity for new crop beans that you will raise on your farm.

We have dramatically ramped up all grain markets during the last 3 weeks at Chicago.  I now get the sense that the grain markets are getting toppy and overbought.  We started to see the weakness come through on Friday’s pricing action, and then we closed significantly off of our highs in the bean market at the close yesterday.  When the market opened at 7 PM Tuesday night, beans were down significantly, but managed to claw back during the night.  I would not be surprised to see the market take a breather this week until the market gets more confirmation of how bad the Argentina bean crop is.  Additionally, we are seeing more precipitation in the western US plains this week which will help the HRW producing areas of the US.  If the wheat market suddenly falls out of bed due to the dry areas in the plains being reduced, this might tip the scale lower for corn and beans as well.

This whole weather scenario in Argentina and in the US plains has caused the funds to cover their massive short positions.  In corn and wheat, their entire short has now been covered.  In beans, not only has their short been covered, but now they have purchased a sizable long position as well.  More will be known this Friday when the Commitment of Traders report is released.  My guess is that the funds could be as long as 50,000 contracts of beans and meal, but time will tell.  This whole process of short covering by the funds has really benefitted the grain markets because the funds were covering (buying) futures.  All of this buying added a layer of underlying support to the markets.  Now, this has stopped, or is greatly reduced from 10 days ago.  From this point forward, it will be more difficult for futures to continue this rally because the buying has almost stopped.

Again, I am very uneasy about the long term prospects of this bean market.  I truly believe that this country will plant close to 92 M acres of beans because the market is buying new beans each day, and the banker is cutting off excess funding to many farmers.  With less money to work with, the farmer will plant more beans as the cost of production is much less.  On top of all of this, I believe the production in Brazil will be better than expected, and that it will cover Argentina’s shortfall to a great extent.  We are in a weather market now, and the market is giving all of you an awesome opportunity to forward contract new beans significantly above the cost of production.  However, all of this enthusiasm will dissipate over the next few weeks as more and more solid yield data is known about South America’s bean crop.  On top of all of this, the US’s bean carryout will grow massively.  Today, the USDA has pegged the bean carryout at 530 M bu.  I believe that the bean export number is still vastly too large at 2.1 B bu.  I believe that this export number could eventually fall to 1.95 B bu or so.  When this happens, bean carryout will grow to 700 M bu.  This is a huge bean carryout number, and when this happens, the bean market will transition from a bull market to a bear market in short order.  Thus, you need to protect your farm revenue.  If you are planning on growing significant bean acres this next spring, you need to get these beans under contract, and in a big way, to protect yourself.  Yesterday, if you took our recommendations and had new crop bean targets in our system, all of the $9.60 cash bean targets for Oct / Nov ’18 delivery into Readfield or Center Valley were hit during the night, but then backed off significantly after hitting this target.  The bean market is in weather mode today and giving all of you a great opportunity.  Please take advantage of it.  A few weeks from now, the tide will turn, and this bean market will very likely turn around and head lower, possibly significantly so.  It would not surprise me to see cash beans be worth $8.50 or lower this fall.  The opportunity is here.  All you need to do is grab it.  For more information on how to enter bean targets online, please click here.  Its free, simple, and easy for you to do on your own, if you like.

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 10 – 12 cent premium added to the cash price in exchange for an offer to sell new crop corn futures around $4.15 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 10 -12 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 $4.15 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 4.15 – 40 = $3.75  The worst case is that you would have new corn sold at $3.75 for Oct / Nov ’18 delivery into Readfield or Center Valley.  This is a great price considering our posted new crop price is at $3.55 or so today.  Please check this out.  We have been writing many of these contracts as of late, and they work really well.

What Are The Charts Telling Us?

Looking at the charts today, all grains made a fresh high on Tuesday this week.  Since then, we have been pulling back.  I get the sense that the market is due for a correction as all grains are seriously over bought.  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 $3.78, Place Targets at $3.76

New Corn – Dec 18 Corn Futures – Support at $3.94, Resistance at $3.99, Place Targets at $3.97

Cash Beans – May 18 Bean Futures – Support at $10.23, Resistance at $10.50, Place Targets at $10.45

New Beans – Nov 18 Bean Futures – Support at $10.15, Resistance at $10.30, Place Targets at $10.25

New Wheat – July 18 Wheat Futures – Support at $4.73, Resistance at $4.93, Place Targets at $4.88

Deadline Quickly Approaching For Average Price Contract Signups

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, 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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