Weekly Grain Update – January 24, 2018

 

1/24/18

January USDA Report Very Bearish, Yet We Rally

Despite the bearish fundamentals from the USDA January crop report, grain futures have been well supported since the numbers were released.  This strength has been most noticeable in soybeans where we have rallied significantly in the last 6 trading days.  Most of this bean strength is due to Argentina being dry as it nears is critical pod filling stage on its bean crop in the field.  Argentina continues to struggle with a lack of rain and higher temperatures which are reducing the bean crop there.  The market is very nervous about the dry Argentina weather, and is watching it very closely each day.  Soybean meal has been affected the most by this situation as Argentina is a huge supplier of bean meal on the world stage.  Any weather related production shortage will have a direct impact on the bean meal market.  Thus, traders are putting a big risk premium in the price of bean meal in the last 10 days as values have surged considerably.

Argentina also produces a considerably amount of corn with normal corn production around the 55 MMT level.  With the dryness this year, the size of the corn crop has dropped to 52 MMT, and this is also supportive to corn futures.  As a result, some large specs have decided to cover a portion of their huge short position.  Going back to mid last week, the funds held a record short corn position of just under 230,000 contracts short of corn futures.  This information from Argentina was enough to spook some to cover some of their short positions.  Additionally, the price of US corn is now the cheapest corn in the world.  This is allowing our corn exports to finally pick up, and last week we saw a huge corn export number of nearly 75 M bushels which sparks signs of optimism in the corn market.

In addition to the dry weather situation in Argentina, other factors have surfaced that is adding support to the bean markets.  The NOPA weekly bean crush numbers were released last week and pegged crush at over 166 M bushels.  This is a huge number and a record.  Part of the reason is the strong price of bean meal which is causing crushers to crush for the meal, not for the oil, and their profitability is very much tied to the price of bean meal.  We can see this through the current bean crush margin of $1.16 per bushel, which is very good, and another record.

Is The Bean Rally Over?

Now, the question becomes how far will we go?  We have seen a nice pop in corn and beans, but how much is enough?  Is it time to take our profits to the bank before the market turns around and leaves us hanging with no support?  Lets look at the bean market.  Generally, a market will retrace 50 to 62% of a previous move before resuming the previous trend.  March bean futures made a high on December 5th at $10.27.  Then, the bean market crashed and it made a low on January 12th (report day) of $9.44.  Since then, we have rallied.  For a normal and healthy correction, the market needs to move back into the “trading window” of a 50 to 62% retrace before resuming the previous trend.  In this case, March beans need to trade up to the “trading window” of $9.85 to $9.95 before meeting this threshold, and then the market will likely move lower, and possibly significantly lower.  What was the high of March bean futures yesterday?  It was $9.88 ¾.  And now what is the bean market doing overnight?  It is down currently.  If you still own old beans, any you need money for a land payment, I would seriously consider selling your old beans, and remove the risk from your position.  One can certainly build a case for weaker bean prices in the near future.

Still Own Old Beans?  The Cash Price Still Not Good Enough?  Cash Plus Is The Answer

We are currently bidding roughly $9.14 (68 cents under March) for cash beans delivered into Readfield.  If this level is still not enough to satisfy you cash flow demands, you should consider our Cash Plus Contract.  This contract will allow you to receive a 25 cent premium over the cash bid, and paid to you today.  In exchange for this premium, you will give us an offer to sell the same quantity of new crop November bean futures at the $10.40 level if on October 24th the price of November soybean futures closes at or above the $10.40 level.  This is a win-win for you.  You will be paid a 25 cents premium now on your cash beans.  If on October 24th, November bean futures close at or above $10.40, you will have the same quantity of beans sold at $10.40 futures, less the basis of 69 cents under November (this could vary slightly), equals a new crop bean contract at $9.71 for Oct / Nov ’18 delivery into Readfield or Center Valley.  This is a very good price considering our posted new crop bean bid is $9.30 and represents a 41 cent premium over our posted new crop bid.  If on Oct 24th, November bean futures close lower than $10.40, then you keep your 25 cent cash premium, and have no other obligation.  This contract has been very popular as of late, and if you still own old beans, you should seriously consider it.

Raising Beans This Year?  You Should Consider Forward Contracting New Beans At These Levels

Are you planning on growing more beans and less corn this year?  If so, you are not alone.  I have talked to many farmers across the Midwest who are saying the same thing.  The input costs are so much cheaper with beans and they can cash flow at these prices where corn is not as profitable at these levels.  I can make a case where we can plant 92 M acres of beans this year due to this scenario.  If you combine this with the fact that the bean yields in Brazil are just huge, and probably a record, South America will likely not help our cause long term.  Yes, Argentina is dry, but Brazil’s area is double the size of Argentina, and their weather has been nearly perfect all year with ample amounts of rain.  Brazil’s bean production will more than offset the Argentina shortfall.  If all of this happens, and the US plants 2 M acres of beans, and bean carryout is already over 500 M bushels, this will build a scenario of significantly lower new crop bean prices this fall.  However, the market is giving us an opportunity to sell new crop beans into Readfield or Center Valley at $9.30 today.  You should be taking advantage of this level and help protect the revenue on your farm.  We have bought a tremendous amount of new beans this week at the $9.25 to $9.35 level.  This is a great level to start, and reward the market if it should rally more.  I have been recommending farmers to sell this $9.30 level for this fall, and then place targets at 15 cents higher to sell another round.  Placing targets is an easy and cost effective way for you to protect your farm.  We can place them for you, or you can enter them yourself by clicking here.

CHS Will Host Annual Meeting On Monday Night

CHS will be hosting its annual meeting on Monday January 29th at 6 PM in New London at Crystal Falls.  If you would like to attend, tickets can be purchased at Readfield, Center Valley,  Weyauwega or New London.  The tickets cost $7.50 each and they need to be purchased before the meeting.  We will have a director election this year in which all members can participate.  A meal will be served at 6 PM with the meeting to follow.  The Board will be considering to change the districting structure of the co-op, and would like your input.  Instead of having directors report from a northern and southern district, the issue is whether to have all 7 directors be elected from and represent the “at large” district.  Please come and voice your support and or concerns.  For more information, please click here.

CHS Will Host Grain Marketing Workshops On Feb 13th

We are once again hosting a Grain Marketing 101 Workshop for our customers who wish to learn more about grain marketing, the contracts we offer, and how to improve the profitability of your grain operation.  Many have asked us to have these meetings again, as they were a huge success this past summer.  Anyone can attend, and they are free to the community.  We will go through the many different contracting options that we provide and examine the markets in which they work the best.  Now is the time to brush up on your grain marketing skills as outside activity is slow and it is a good time to learn more about what options are available to you.  We will be hosting two meetings on February 13th.  One at 10 AM in New London and at 6 PM meeting in Amherst.  Please RSVP by February 9th to the New London Office at 920-982-1111 or to anne.moore@chsinc.com.  Please click here for more information.

As always, if I can help you with anything, please call me at Readfield.

Marcus

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