Weekly Grain Update – March 6, 2018



USDA To Release March Crop Report On Thursday

The USDA will be out with its March crop report on Thursday March 8th at 11 am.  As we look at the supply and demand tables we expect the corn supply to tighten up a bit due to its relative low cost to the world.  US corn is the cheapest source of corn in the world, and this will likely remain intact until early summer.  We have also seen corn exports remain stout, ethanol crush remain firm, and feed demand staying strong with the price of cattle now at $125.  On Thursday, I would not be surprised to see the USDA make a slight increase to corn exports due to our extreme price competitiveness.  Additionally, I would not be surprised to see corn carryout to be trimmed in a small way on Thursday.  As of right now, we have the corn machine running on all 8 cylinders with ethanol, exports, and feed all supporting a great demand base.  We also have the issues in Argentina and Brazil which are supportive.  Brazil is too wet and having a hard time getting their second corn crop planted and Argentina’s dry conditions are reducing its first corn crop down to 37 MMT or so.  This means the world will be coming to the US to buy corn, and this should keep our basis very firm at the gulf.  This will keep the corn basis relatively firm for the majority of the Corn Belt as this strength moves up the Mississippi.  December 18 corn futures made a fresh high on Monday at $4.06 with steep farmer selling.  I expect Dec corn to trade to the $4.15 to $4.20 before running out of steam and retreating.

The bean situation is different than corn.  We all know about Argentina’s dry weather problem and its affect on the bean meal and soybean markets.  However, right next door to Argentina sits Brazil with a huge and growing bean crop on their hands.  Reports surfaced last night that Brazil’s bean crop will top 117 MMT even though Argentina’s bean crop could be trimmed down to 42 MMT or so.  For every bean bushel that Argentina loses, it seems that Brazil is gaining.  The problem is that the US is not the cheapest source of beans in the world.  Brazil is.  And the largest bean buyer in the world is China.  As of late, the majority of China’s bean purchases have been coming from Brazil, and their Chinese bean purchases are expected to really ramp up as their bean harvest nears 50% completion.  On top of all of this, the Trump administration just slapped a 25% tariff on steel, a 10% tariff on aluminum, and has already placed tariffs on Chinese washing machines and solar panels.  Are we going to have a trade war with China?  We have already seen what China did to the milo market.  They stopped buying our milo last month and the Texas Gulf basis crashed.  Will the same thing happen with beans?  One thing is for sure, these tariffs won’t help us sell the Chinese more beans.  However, they need our beans, and there is no one on earth who can supply the quality and quantity of beans to them in short order.  As bean vessels back up in Brazil’s ports over the next 60 days, the Chinese will likely send business to the US if the line up becomes too long.  Still, we are only getting the “crumbs” and not the full blown bean sales from them.

The point of all of this is that I fully expect bean exports numbers to be cut in the coming months.  The current USDA bean export number is 2.1 B bu.  I would not be surprised to see this number be cut down at least 2.0 and more likely 1.95 B bu when the dust settles.  The current bean carryout is 530 M bu.  This is a huge amount of beans.  If the above happens, all of these bushels will increase the bean carryout number to 700 M bu or so.  If the Chinese all of a sudden enter a trade war with us, this bean carryout number could grow to 800 M or so.  We have not seen a bean carryout number this big since the CCC days in the mid 80’s.  And if this situation develops, our bean market will surely be pressed lower, and possibly significantly so.  An 800 M bu bean ending stock number will likely cause November bean futures to drop at least $2.00 by harvest.  November bean futures made a fresh high on Monday at $10.44 and I see clear overhead resistance at the $10.50 level.  We have seen a huge run up in prices with the market closing higher 15 out of the last 16 trading days.  The market is getting overbought, and everyone is moving to one side of the boat.  It is time for a pull back because markets do not trade higher forever.  Again, I do not have any problem of having at least 50% of my bean APH forward contracted for fall delivery here with November bean futures at the $10.40 level.  I personally think before the report on Thursday, it would be a very prudent thing for you to do to protect your farm.  To see where our cash grain bids are currently trading, please click here.

Take Advantage Of Short Selling Opportunities With Online Targets

Just prior to 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.

What Are The Charts Telling Us?

Looking at the charts today, all grains made a fresh high on Friday last 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 $3.78, Resistance at $3.88, Place Targets at $3.85

New Corn – Dec 18 Corn Futures – Support at $4.00, Resistance at $4.06, Place Targets at $4.04

Cash Beans – May 18 Bean Futures – Support at $10.50, Resistance at $10.82, Place Targets at $10.74

New Beans – Nov 18 Bean Futures – Support at $10.24, Resistance at $10.44, Place Targets at $10.38

New Wheat – July 18 Wheat Futures – Support at $4.92, Resistance at $5.31, Place Targets at $5.21

FRIDAY – Signup Deadline For July Delivery Corn, Beans, or New Crop Wheat Average Price Contracts

Friday is the last day to sign up bushels to be enrolled in our average price contract program for old corn, old beans, or new wheat, for July 18 delivery into the elevator.  This is for old crop corn or beans that you are storing in the bin, or new crop wheat that will be harvested in July.  This contract is a cash contract and will use a 10 week period to average the price.  We will average the price from March 14th through May 16th.  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.  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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