Weekly Grain Update – March 22, 2018

 

3/22/18

Rain Finally Breaks the Grain Markets

After eight weeks of higher grain markets, the tide has quickly turned.  And like many times, we went higher than we should have, and now unfortunately, we may go lower than we need to.  This is the definition of volatility, and many times this correlates with fund activity in our grain markets.  We have been saying for weeks that Argentina is dry and the US plains are dry.  These facts caused the funds to cover their huge short positions that they have carried since fall harvest.  The news of dryness in Argentina and in the HRW areas of Kansas and Oklahoma causes them to get spooked and they covered (bought back) their short positions.  But they not only got back to an even position, they kept buying until they had a very sizable long position in beans and corn.  In fact, if you go back to mid-January, the funds held a short corn position of 227,000 contracts and a short bean position of 104,000 contracts.  Now, as of Tuesday of last week, they had accumulated a long position of 233,000 contracts long of corn, and 208,000 contracts long of beans.  What does this mean?  This means that in the 8 week period from mid Jan to mid-March, the funds bought a total of 460,000 contracts of corn, or 2.3 B bu of corn, and 312,000 contracts of beans, or 1.56 B bu of beans, all on paper.  Now, let’s compare this to the size of our entire corn and bean crop the US raised last year.  We produced a total of 14.604 B bu of corn and 4.392 B bu of beans.  This means that in the last 8 weeks, the funds have purchased 15.7% of the entire corn crop on paper and purchased 35.5% of the entire bean crop on paper.  This shows you the magnitude of their operations and why grain futures rallied and were supported like they have been.  We hear so much about the short covering rally.  What we witnessed this week was just the opposite:  the long liquidation sell-off.

In life, good things rarely last forever, and the grain markets are no exception.  We were getting clues last week that this market was way overbought and due for a correction.  When a market is given very bullish news and does not react bullishly, then the top is in, at least for now.  Last week on Thursday, we had a corn export number that was just huge.  It was the single largest corn export number that we have seen in 23 years!  Any yet, the market did nothing.  Secondly, NOPA bean crush came out with a huge monthly bean crush number, and the market did nothing but go lower.  These were clear signals that the tide was changing.  It was time for a correction lower.

The final straw that broke the back of the camel was rain over the weekend in Argentina and in the US plains.  Both areas receive more rain than predicted and that did it.  When the grain markets opened at 7 PM Sunday night, all grains gapped lower on the open and never looked back.  When the dust settled at the close, corn was 11 cents lower, beans were 25 cents lower, and wheat was 16 cents lower.  The market was easier on Tuesday as well.  What had taken weeks to establish was gone in 2 trading sessions.  Here is a summary of why the market sold off:

  • Fund position liquidation
  • Trade war fears
  • The funds held a longer position than thought
  • 1-2” rains in Argentina and US plains
  • Much easier bean meal markets
  • Argentina’s bean crop losses now capped. Bean crop should be larger than 40 MMT.
  • Weaker markets leading up to the huge sell-off on Monday
  • Much weaker technical readings from the charts
  • Big drop in the stock market on Friday

 

The recent sell-off in the grain markets has caused the producer to become very disengaged from marketing his grain and instead, is focused on preparing to plant his corn crop.  In the coming days, this lack of participation by the farmer due to lower grain prices should help the basis to improve.  We are already starting to see this happen in the southern areas where the basis and spreads are now going to be forced to do more of the market lifting since futures have backed off.  I suspect the local basis will firm as well, but it will likely take a bit more time for the strength to reach our area.

If you have not prepared a marketing plan for any remaining unsold grain in storage or in your bin, I strongly suggest you do so now before you plant your corn crop.  Yes, the market has pulled back, but now is the time to figure out where you want to sell your old crop, and at what level you want to sell your new crop production at.  New corn is at $3.57, new beans at $9.55, and new wheat is at $4.01.  We could see another rally during May and June if we have a planting problem, and the weather will likely not be perfect everywhere.  I strongly suggest that you talk to our grain originator and get a grain marketing plan in place so when the market gives us an opportunity to forward sell new crop or cash bushels, you don’t have to think about it, but only pull the trigger.  If you have not sold any new crop bushels yet, I strongly encourage you to start here and then place targets to sell each 5 cents higher on corn and wheat, and each dime higher on beans.  You can make money at these levels, it is prudent marketing to get these levels locked in, and this will give you risk protection for your farm.  You can call us to enter a selling target 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.

New Arrive Delayed Price Rates have Been Reduced

Effective March 20th, we have reduced our Delayed Price rates again for new arrive corn and beans into Readfield and Center Valley.  These rates are for new arrive bushels only, and the rate will be in effect until Oct 1st 2018 when new crop storage rates go into effect.  The new Delayed Price rate is now 60 days FREE, and then 3 cents flat per month thereafter.

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 28 cent premium added to the new crop cash price in exchange for an offer to sell the same quantity of new crop bean futures at $10.65 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 28 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 $10.65 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 10.65 – 69 = $9.96  The worst case is that you would have another set of new beans sold at $9.96 for Oct / Nov ’18 delivery into Readfield or Center Valley.  This is a great price considering our posted new crop price is at $9.55 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.

Corn Basis Contracts Create Cash Flow NOW and Stop Storage Charges

Do you still own old corn in the bin at home or on Delayed Price at the elevator?  Do you need cash flow now and want to stop the storage charges?  Please consider a corn Basis Contract.  A basis contract is where you simply lock in the basis (the difference between the cash price at our elevators and level where corn is trading on futures at Chicago.)  Today, cash corn at Readfield is trading at 37 cents under the May ’18 corn futures level.  In a basis contract, we would lock in this 37 cent basis level under the May futures, but leaving the futures portion unpriced.  You will then have a contract that will trail the May corn futures by 37 cents.  Most people will then give us a target to price the futures level to price the contract when corn futures rally 5 or 10 cents higher.  In the mean time, you can start to deliver against this contract if coming from the bin, or we will allow bushels on Delayed Price or Open Storage to be applied onto this contract with no charge.  Once the contract is filled, if you are paying storage, the storage stops immediately, and we can then advance you 70% of the contract value based on the current market.  The balance of the contract value will be paid to you once you set the final price on the contract.  This is a win-win for all parties.  You get cash flow now to pay bills, you stop the storage from accumulating, and you get to haul the bushels now when you have time.  This is a great alternative vs doing nothing.  On top of all of this, corn basis levels are stout right now.  The basis level you will be locking in is a great level compared to basis levels in the past.  It deserves your serious consideration.  Please give us a call, and we can explain to you all of the details if you have any questions.

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 cent premium added to the cash price in exchange for an offer to sell new crop corn futures at $4.20 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 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 close, 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 $4.20 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 4.20 – 40 = $3.80  The worst case is that you would have new corn sold at $3.80 for Oct / Nov ’18 delivery into Readfield or Center Valley.  This is a great price considering our posted new crop price is at $3.57 or so today.  Please check this out.

What Are The Charts Telling Us?

Looking at the charts today, all grains made a fresh low on Monday.  Since then, the market has not done much.  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 $3.73, Resistance at $3.85, Place Targets at $3.80

New Corn – Dec 18 Corn Futures – Support at $3.95, Resistance at $4.03, Place Targets at $3.98

Cash Beans – May 18 Bean Futures – Support at $10.21, Resistance at $10.50, Place Targets at $10.40

New Beans – Nov 18 Bean Futures – Support at $10.21, Resistance at $10.48, Place Targets at $10.38

New Wheat – July 18 Wheat Futures – Support at $4.62, Resistance at $4.92, Place Targets at $4.82

To see where grain futures are currently trading, please click 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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