Weekly Grain Update – March 13, 2018



USDA Report Bullish Corn, Bearish Beans

The USDA released its March crop report last Thursday and gave some interesting numbers to the grain trade.  Changes were made to both corn and bean export numbers which took the market by surprise and made this report a game changer.  The corn numbers were rather bullish.  However, the changes made to the bean supply and demand tables were rather bearish.  Let go through the details.

The USDA made two changes to the corn supply and demand table.  First, they increased corn used in ethanol by 50 M bu to 5.575 B bu and secondly, they increased corn exports by 175 M bu to 2.225 B bu.  The net result of these changes was a reduction in corn carryout for this year of 225 M bu down to 2.127 B bu.  Usually, the USDA does not make much of a change on its March crop report.  This was not the case this month.  The above changes really surprised the market, and as expected corn closed 6 cents higher on the news on Thursday.  We have been saying for weeks that the corn demand structure is stout, and these numbers are just confirming this strength.  We have a corn market that is now the cheapest source of corn in the world, and this is expected to be the case until early summer.  We also have solid ethanol demand as $60 crude oil is allowing plants to run at full capacity.  We have excellent feed demand as the price of cattle now trade at $125.  On top of all of this, you have a corn production problem in Argentina, where their crop is expected to fall to 35 MMT or so.  We now have a world corn carryout that is now below 200 MMT for the first time since the ‘13/14 marketing year.

This strength has been shown through the basis at the Gulf, and it has been on fire as of late.  As the bean market crashed on Friday, the corn market remained calm and did not sell off like beans did.  The previous bean rally has allowed the farmer to sell new crop beans in a massive way over the last 2 months.  However, the market has not bought nearly as much new crop corn as beans.  The market needs the American farmer to plant at least 90 M acres of corn this year to keep the corn market well supplied.  Even with 90 M corn acres planted this summer in the US, the ‘18/19 corn carryout is expected to drop to 1.775 B bu or so.  Thus, the market this summer will be very sensitive to any weather or planting problem affecting the corn market.  If a problem develops, the corn market could turn bullish in a heartbeat.

The bean market could not be more opposite than corn.  Even with the problems in Argentina, beans are starting to stack up worldwide, and it will start to weigh on prices.  The USDA cut bean exports by 35 M bu down to 2.065 B bu.  They also increased crush by 10 M bu to 1.96 B bu.  The result of these two changes is an increase in bean carryout by 25 M bu to 555 M bu.  The market did not expect the reduction in exports which pushed bean carryout higher.  This change seemed to take the wind out of the sails of the bulls, and led to the steep sell off in the futures on Friday closing over 25 cents lower.  The real uncertainty now is how much more exports will be lost during this marketing year.  The administration is at odds with Canada and Mexico over NAFTA, and we could be at tremendous odds with China over the steel and aluminum tariffs put into place on Friday.  China is the largest buyer of beans in the world, and Brazil currently has the cheapest beans in the world as they begin their bean harvest.  If the Chinese decide to not buy our beans due to the steel tariffs, our beans will stack up in a huge way.  If this happens, we could have bean ending stocks next year that start with a 7 and not a 5.

Fortunately, crush margins have been just huge over the last 4 weeks as the price of bean meal ramped higher.  Stronger crush margins means more crush demand which will support the cash bean basis.  It is hard to know what the final yields will be in South America, but Brazil will likely have a bean crop close to 117 MMT once the dust settles, and Argentina will fall to 40 MMT or so.  These changes are already factored into the current bean futures prices.  The world bean carryout is still pegged at just under 95 MMT which represents a stocks to use ratio of 27.5%.  On top of all of this, the US farmer has been selling new crop beans, and looks to plant up 92 M acres this spring.  One thing is for sure, the world will not run out of beans anytime soon.  In fact, if Argentina did not have its drought this year, the price of beans could have easily been $1.50 to $2.00 lower than where we are today.

I can’t stress enough how over priced beans are today.  Any sort of problem with China, where they reduce their buying of US beans, and the beans will start stacking up in the US in a huge way.  Our carryout is already at 555 M bu.  If China stops buying our beans, we will be over 700 M bu in a heartbeat.  The banker is also putting pressure on the American farmer to plant more beans because the inputs are cheaper.  If we plant 92 M acres of beans this year, bean ending stocks will grow to levels we have not seen in decades.  November bean futures are currently trading at $10.38  At this level, I recommend that you have at least 50% of your new crop APH forward contracted for this fall.  There is significant risk of lower prices.  Let’s add a layer of protection to your farm.  Please click here to see which grain originator on our staff can help you create a unique marketing plan for your farm.

Have You Sold New Beans Yet?  Make Values Even Better With Cash Plus Contracts

If you still have new beans to sell, please check out our Cash Plus Contracts.  We can add a premium to your new crop bean sales price in exchange for an offer to sell more new beans if November Bean futures close above a certain level on Oct 24th.  These contracts will allow you to sell new beans today with a 25 cent premium added to the new crop cash price in exchange for an offer to sell the same quantity of new crop bean futures around $10.80 if on Oct 24th, the November bean 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 25 cent premium paid to you on top of the current new crop bean price, and if on Oct 24th, depending on what November bean futures trade at the close on this date, 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 another new crop sale where November futures were locked in at the $10.80 level.  Taking off the basis of 69 cents under the November futures for delivery into Readfield, which is our current posted new crop bean basis, you would have a new crop bean contract at 10.80 – 69 = $10.11  The worst case is that you would have another set of new beans sold at $10.11 for Oct / Nov ’18 delivery into Readfield or Center Valley.  This is a great price considering our posted new crop price is at $9.70 or so today.  Please check this out.  We have been writing many of these contracts as of late, and they work really well.  Please click here to see our current cash grain bids.

What Are The Charts Telling Us?

Looking at the charts today, all grains made a fresh high on Thursday last week.  Since then, we have been pulling back.  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 $3.87, Resistance at $3.94, Place Targets at $3.92

New Corn – Dec 18 Corn Futures – Support at $4.03, Resistance at $4.10, Place Targets at $4.08

Cash Beans – May 18 Bean Futures – Support at $10.32, Resistance at $10.60, Place Targets at $10.55

New Beans – Nov 18 Bean Futures – Support at $10.24, Resistance at $10.48, Place Targets at $10.43

New Wheat – July 18 Wheat Futures – Support at $5.00, Resistance at $5.32, Place Targets at $5.22

To see where grain futures are currently trading, please click here.

Take Advantage Of Short Selling Opportunities With Online Targets

Just prior or after the monthly USDA grain reports, volatility really ramps up in the grain markets.  This causes the futures levels to move around much more than during the rest of the month.  I encourage all of you who need to sell grain to use targets to take advantage of a pop in the market.  It is simply amazing what these markets can do in a very short amount of time.  There is simply no way we can communicate to all of you during a 15 minute rally that happens right during a crop report.  That is why targets work so well.  It allows you to have resting orders already in position at Chicago so when the market starts to gyrate, your orders get picked off and you can take advantage of a very nice pop in the market. Targets are a great tool to help you lock in better returns for your farming operation.  You can call us and we can enter them for you, or you can do it all by yourself by entering them online through our Online Bid Center by clicking here.

CHS Larsen Co-op To Host Grain Marketing Meetings

On April 2nd and 3rd, we will be hosting 3 Grain Marketing Meetings throughout our draw area.  Meetings will be held in Larsen, Waupaca, and New London.  Brian Rydlund from CHS Hedging will be joining us to go over the current S&D’s and also offer his recommendations for contracting and marketing.  It will be a lively discussion on current grain topics.  You are welcome to attend.  For more information on the location, times, and how to RSVP, 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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