Weekly Grain Update – May 23, 2018

Trade War Avoided.  Bean Planting Much Ahead of Average. Corn Planting Almost Complete.

The big news this week is that a trade war between the US and China has been avoided.  The Chinese head negotiator spent all last week at the White House trying to hammer out a deal between the two countries.  Many of the details are not yet worked out or known at this point.  However, progress has been made, and an outright trade war will not occur.  It appears each side is working through the negotiating process, both giving in and taking, in order to reach a compromise.  The issue with the US is the huge trade imbalance with China.  President Trump is very committed to getting the US back to a more even trade balance with China.  A big trade imbalance is when the US buys more products from China than China buys from the US.  The current trade imbalance is roughly $600 B annually, and this process will try and get this reduced over time.  Obviously, the US needs China to buy grain from us as well as many other manufactured goods.  Frankly, China needs our soybeans in order to satisfy all of their needs.  China is still buying all of their beans from Brazil, and have practically stopped buying any beans from the US in the last 6 weeks.  Each week, we patiently wait for news that China has purchased more beans from us, but this has not happened recently.  This news that a potential trade war has been avoided is a huge deal to the bean market as it signals that China will once again start buying our beans.  Now, we must sit back and patiently wait to see the Chinese finally buy our beans once again.

The market is in full anticipation mode since Monday.  News started to surface on Friday that a trade war with China has been avoided.  As expected, the funds purchased grain futures on this news and pushed all grains higher over the last few sessions.  If China starts to buy US beans again, this is supportive to the grains and the bean market.  So far, the market has ramped up in anticipation of more Chinese purchases, but we have not yet seen any real activity.  I get the sense that we have now pushed grain futures as high as we can go until we see the actual Chinese buying occur.  At the end of the day, this buying is what must occur, not rumors that it will occur.  Time will tell.  Stay tuned.

In the meantime, this new enthusiasm is creating a nice opportunity to lock in profits on new crop grain production.  Yesterday, we saw Dec ’18 corn futures hit $4.25 for the first time this year.  I continue to recommend a scale up approach to selling new crop corn.  I like selling 10-15% of your anticipated production this year, starting at $4.25 Dec corn futures and sell this 10-15% each nickel higher from $4.25 to $4.50.  At the current time, I don’t see how Dec corn can rally past $4.50.  A drought this summer can change things, but we must begin to start selling next year’s production, assuming that we won’t have a huge weather issue this summer, especially if you have sold nothing so far.  The market will give you some opportunities to forward contract your corn for the next 30-60 days.  Once we get past July 15th, and we no longer have a drought or high temps to hurt pollination, it is very likely that corn will drift lower into harvest.  Right now, the market won’t sell off because the corn crop is not made yet.  Once this happens, watch out.

Those of you who raise wheat need to be paying attention.  The recent dryness in the western plains has caused the funds to cover all of their short positions over the last 2-3 weeks.  At one point, the funds held a huge short position that now has been completely covered.  As the funds bought futures to cover their short position, all of this buying has propped up Chicago wheat futures, and now are at attractive levels.  If you have space at home or own condo space, you can now forward contract wheat for Jan ’19 delivery at $5.00.  New wheat for July / Aug ’18 delivery this summer into Readfield or Center Valley is now at $4.53.  If you are raising wheat, and it looks good, and you plan to harvest the crop and have nothing sold, I would be seriously looking at this opportunity to forward contract new wheat at levels north of $4.50.  It is a nice opportunity to lock in profits and protect your farm.

On new beans, many of you have already sold bushels for new crop.  Nov ’18 bean futures are now at $10.38.  Earlier in the year while Argentina had all of its problems, Nov ’18 bean futures traded to a high price of $10.60 before backing off.  At the time, I encouraged all of you to sell new beans and many of you took advantage of the opportunity.  Yes, the Chinese are back in the market and look to buy more beans.  Much of this enthusiasm is now already baked into the current price.  Frankly, I am not bullish Nov beans above $10.50.  There is just too much potential for more corn acres in the northern Corn Belt to get planted to beans instead.  The bean crop is being planted much earlier than normal this year, and there is a good chance that bean yields to do very well this year.  Obviously, the bean pods are filled during LH July and FH Aug this year, and a drought during this window will hurt yields, but the market could slide back significantly by then.  Many of you have already sold a very good percentage of your new beans.  I cannot disagree with this.  If you have not, this is your opportunity to catch up.

The USDA pegged the US corn planting progress on Monday at 81% complete and this compares to the 5 year average at 81% as well.  On beans, they pegged planting progress at 56% complete as compared to the 5 year average at 44%.  We have the fastest bean planting in the last 5 years.  Generally, this should correspond to better yields.  The northern Corn Belt is still struggling to keep up with the wet and cool condition this year.  MN has 77% of its corn planted, compared to 84% on average, and 48% of its beans planted, compared to 56% on average.  Locally, a great amount of corn was planted last week ahead of the rain on Monday.  The local forecast is clear through Friday.  This should allow many to get back into the fields and finish up the majority of their corn by the end of the week.  Very few beans on been planted yet locally.  Many will start planting beans once they finish corn this week.

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 $3.94, Resistance at $4.08, Place Targets at $4.05

New Corn – Dec 18 Corn Futures – Support at $4.12, Resistance at $4.25, Place Targets at $4.22

Cash Beans – July 18 Bean Futures – Support at $9.92, Resistance at $10.36, Place Targets at $10.28

New Beans – Nov 18 Bean Futures – Support at $10.15, Resistance at $10.45, Place Targets at $10.38

New Wheat – July 18 Wheat Futures – Support at $4.86, Resistance at $5.30, Place Targets at $5.20

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

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.

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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