Weekly Grain Update – January 11, 2018

1/11/18

Major USDA Report on Friday

The USDA will be out with its January crop report at 11 am on Friday.  This will be a significant report and it usually causes a big move, one way or the other, for grain futures at Chicago.  On Friday, the USDA will report Dec 1st grain stocks, update the monthly grain supply and demand tables, and also update the trade on wheat acres planted.  This is a big report with a great amount of information being released.  There is a good chance that the market will be surprised by something, and thus it is likely that the market will gyrate significantly after the numbers are released at 11 am on Friday.  Many feel that the corn yield could grow slightly and many feel the current corn export projection is too high and it needs to be lowered.  If either one of these scenarios happen on Friday, this will cause the already massive corn carryout to grow larger, and this will put downward pressure on the market.

In beans, we might see a small adjustment in the final yield or harvested acres, but the adjustment will likely be small.  However, most agree that the current bean export number is over stated and it is very unlikely that we will catch up.  The chances are good that the bean export number will be lowered, and if this happens, anticipated bean carryout will grow, which will pressure bean futures as well.  That being said, the bean market made a new low yesterday where March Soybean futures touched $9.51 ¾ at Chicago.  The bean market busted through previous support at $9.60 and kept on falling.  The forecast for better rains in Argentina surfaced at noon yesterday, and the likelihood of huge South American bean production pushed futures lower.  Beans have not traded this low since August, and many are wondering what the USDA has in store for us on Friday.  That being said, I have seen many times where the market makes a new low right before the report, and then rallies right through the report, even if it is bearish because all of the bearish factors are already factored into the price.  This might be one of those times where we cannot push the market any lower.  But make no mistake, the market will move on Friday at 11 am.  The question is which direction and by how much.

My regular readers know that I am adamant about putting targets to work ahead of these major reports.  It is simply amazing what these markets can and will do in fractions of a second now that all trades are electronic.  A selling opportunity will likely happen after the numbers are released on Friday, but the opportunity might only last 5 seconds, and there is simply no way I can call 250 customers in a 30 minute window to tell them about a great opportunity.  It is just not possible, and as we move more and more into the electronic age, these windows of good selling opportunities seem to get smaller and smaller.  I encourage all of you to enter your own targets using our free, online offer center.  Please click here to learn more and learn how to protect your farm.

Selling Grain Through a Farmer Co-op Might Cut Your Tax Bill

Right before Christmas, Congress passed and the President signed, a new tax bill which has changed many items in the tax code.  Specifically, section 199A has been changed, and if you market your grain, milk, or produce through a farmer cooperative, there is a decent chance that 20% of your sales proceeds are now a qualified deduction against the income generated on your farm.  The end result is a huge savings on taxes for your farming operation.  However, this deduction is only for grain that is marketed to or through a farmer cooperative.  Business conducted through and independent or a publicly traded grain company does not qualify.  I am no tax attorney or a CPA by any means.  However, I strongly encourage each and everyone of you to talk to your accountant today to see how these changes will impact your operation.  There is a huge amount of pressure building on Congress to reverse the changes made to Section 199A, so no one knows if these rules will stay in effect or not.  However, if the law does not change, this will be a huge tax savings to any grower who markets his grain or milk through a cooperative as 20% of your sales now become a qualified deduction and can significantly reduce your tax bill.  Obviously, CHS Larsen Co-op is a farmer cooperative.  If you are not a member and would like to join our co-op, please click here to look at our membership materials.

Looking at the charts, March Corn futures continue to trade in a sideways pattern with support at the $3.46 level and resistance at the $3.56 level.  The market is currently trading at $3.49  For those of you who need to sell corn nearby, I would place targets at the $3.52 to $3.55 level and see if the market will pop during the report on Friday.  On beans, as mentioned above, yesterday was a rough day.  The bean market busted lower and it looks weak.  Looking at the March Soybean chart, we are in a lower pattern with support at the $9.51 level and resistance at the $9.61 level.  For those needing to sell beans, I would place targets at the $9.55 to $9.60 level and work during the report.  If you are in a corner, and must sell beans to make a land payment, I would not mess around with the bean market.  The way it acted yesterday was not good and this market is sick.  If you need the money, get out now.

Introducing New Average Price Contracts

We are always looking for unique ways to reduce your risk and help capture market opportunities when they appear.  I am happy to introduce 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 the corn ethanol plant in Oshkosh.  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 problem 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 Readfield.

Marcus

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