Weekly Grain Update – May 2, 2018

5/2/18

Corn vs Beans, Planting Decisions, and Weather

The market is still concerned about the delayed planting progress of the US corn crop.  On average, we are 10 days behind from a normal year.  Although true, we have made tremendous progress planting corn over the weekend and the first part of this week.  All efforts were made to push as much corn into the ground prior to the rain system that moved into the Corn Belt mid-week.  The USDA pegged Illinois with 32% of its corn planted and Iowa with 17% of its corn planted.  Make no mistake, the market will have its eyes squarely focused on these two states and will closely monitor their corn planting progress as the bulk of the US corn is produced there.  Many feel that these planting numbers could be on the low side as many acres were planted on Sunday and Monday that were not included in the total.

Why is the market so concerned about corn planting?  It’s because our margin for error, our cushion, is now gone.  Let me explain.  The USDA pegged the corn acres at roughly 88 M and the bean acres at 89 M.  Even if we plant 88.5 M corn acres, and if we have no production problems and have an average yield of 176 bpa, with our current demand structure, it is very likely that corn carryout next year will fall from 2.1 B bu this year to 1.8 B bu or so next year.  The market gets in comfort mode anytime corn carryout starts with a 2, or close to a 2.  Anytime corn carryout falls much below 2 B bu, the market gets uncomfortable, and when the market gets uncomfortable, it will put a big carrot out in front of you to make sure you do everything possible to get your corn planted.  It puts more risk premium in the market to encourage you to spend the extra money, extra time, the extra whatever, to make sure you get it done.  This explains why we are seeing corn react positively in the last 2 weeks.  The market knows producers make planting decision based on the current market and it is making the corn market as positive as possible right now.

This premium in the corn market will last until the majority of the corn is planted and emerged, and it makes it through the critical pollination period.  With the delayed planting, most of the US corn will likely go through pollination around July 15th or so, assuming normal weather.  This means you have a window from now until July 15th, that the downside on corn is relatively limited.  Again, the market is uncomfortable now.  Once it sees a good crop planted, emerged, and pollinated around July 15th, it will likely drift lower.  In the meantime, if any of these things don’t go right, the market could rally, and possible significantly.  The market will pay you to do everything in its power to make sure we have next year’s corn carryout as close to 2 B bu as possible.

That being said, we have rallied corn tremendously over the last 2 weeks.  At the current levels, if you are profitable, and need to go some coverage on the books, I have no problem selling corn.  I would place targets out there and let them work and do their job.  If these get filled, replace them and move the targets 5-10 cents higher.  Rinse and repeat.

The situation with beans is totally different.  Bean carryout is currently 550 M bu and it looks like bean carryout next year will grow significantly.  The USDA pegged bean acres at 89 M.  However, most of the market believes that the final bean acres will be much higher, and closer to 91 M.  Why?  Beans cost a whole lot less to plant.  Many farmers are having a harder time financially, and the banker will not be involved as much to finance their operations if more beans are planted.  Additionally, the bean market has given most US producers the opportunity to sell new beans out of the field at profitable levels, with many growers in the US able to lock in $10.00 new beans cash prices out of the field.  This works, and the banker has encouraged the farmer to plant more beans this year to protect his farm.  The problems with the drought in Argentina earlier this year caused beans to rally, and provided a nice platform to sell new beans, and the US farmer did just that.

The bottom line is that if the US farmer plants anything close to 91 M acres of beans, and the final yield is close to 50 bpa, our bean carryout will go from 550 M bu to 750 M bu.  This is a HUGE amount of beans and will likely weigh on prices once the crop gets planted.  The market gets in comfort mode once bean carryout reached 400 M or higher.  Next year’s bean carryout could be almost double this.  Again, this is a huge amount of beans.  What does this mean?  This means that beans could move significantly lower in the weeks to come if the crop gets planted OK and we have halfway normal weather.  Today, local new crop beans are just under $10.00 cash price for fall delivery.  I have no problem of getting 75% of your APH locked in here at these levels to protect yourself and your farm.  The real risk is for significantly lower bean prices in the weeks ahead.  The market is a little uneasy now with the Argentina drought and the trade disruptions due to the China tariffs.  At the end of the day, once the US crop gets planted, and the acres are more than anticipated, the market will get much more comfortable, and a comfortable market means lower prices for you.  Please take action now to protect your farm.  We are here to help you put a grain marketing plan together.  Please click here to see where our cash and new crop bids are currently at.

Targets Produce Success and Protection For Your Farm

Before long, weather markets will push the market around like a yoyo and produce unprecedented volatility.  However, volatility can be your friend if you have a solid marketing plan and know how much and at what price you feel comfortable selling when the right opportunities present themselves.  If you are not working with one of our grain originators today, please give us a call.  We will gladly sit down with you to create a plan and help you protect your farm.  For a list of our grain originators and the one closest to you, please click here.  These types of volatile markets are a grain marketer’s dream.  The volatility present selling opportunities that are very short lived.  For the disciplined marketer, who knows exactly what commodity he needs to sell and at what level, this is a perfect scenario.  You simply place target orders in our system and at 3 am in the morning next Thursday while China makes an announcement when we are all sleeping, the markets ramps up, hits your target, locks in your contract price, all automatically while you are in bed.  How fantastic is that!  I encourage all of you to start using our online target system.  Its free, easy, and will protect your farm.  Please click here for more information.

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

I can build a solid case why beans will move lower in the coming weeks as more acres get planted and less corn.  In addition, the bean planting window is not nearly as tight as the optimum corn planting window.  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 29 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 $10.85 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 29 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 $10.85 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 10.85 – 69 = $10.16  The worst case is that you would have another set of new beans sold at $10.16 for Oct / Nov ’18 delivery into Readfield or Center Valley.  This is a great price considering our posted new crop price is at $9.76 or so today.  Please check this out.  We have been writing many of these contracts as of late, and they work really well.

What Are The Charts Telling Us?

Here are the support and resistance levels for cash and new crop grains.  These are all futures levels as traded at Chicago:

Cash Corn – July 18 Corn Futures – Support at $4.00, Resistance at $4.06, Place Targets at $4.05

New Corn – Dec 18 Corn Futures – Support at $4.15, Resistance at $4.20, Place Targets at $4.19

Cash Beans – July 18 Bean Futures – Support at $10.27, Resistance at $10.67, Place Targets at $10.60

New Beans – Nov 18 Bean Futures – Support at $10.25, Resistance at $10.57, Place Targets at $10.52

New Wheat – July 18 Wheat Futures – Support at $5.10, Resistance at $5.31, Place Targets at $5.25

To see where grain futures are currently trading, 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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