Weekly Grain Update – May 30, 2018

 

After A Nice Rally, Bearish Factors Line Up

The grain markets witnessed a tremendous run up in price last week after the productive meeting with the Chinese chief negotiator last week.  Now, the market wants to see some results of this meeting before taking the market any higher.  Trade volume was light towards the end of last week, and this allowed the bulls to easily push the market to new highs without much resistance.  As the market opened Monday night after the long Memorial Day weekend, the bullish mentality began to change.  Tuesday was a bearish day on many levels.  The market opened up strong Monday night and made new highs, only to trade lower and close lower, and some markets closed below the previous day’s lows.  This is the definition of a key reversal, and many grain markets witnessed this on Tuesday.  Technically, this is a bearish signal that might send grain futures lower for a significant amount of time.

For all of the bulls out there, you need to pay attention, especially if you don’t have enough new crop sales locked in yet.  At some point, we will see a “dead cat bounce” where futures will go down and hit support, and then rebound back up and “kiss” the previous low goodbye.  This will be your opportunity to put your final sales on at decent levels for this year’s production.  Once we kiss the previous lows goodbye, all bets are off, and the market will likely trade lower to significantly lower for the balance of the season.  At that point, it will take a weather issue to prop the market back up.  At some point, we will have not enough rain or too much heat in a region of the US to cause the market to bounce again.  The question will be how much will it fall before this happens?

What happened on Tuesday to turn the tide from tremendous bullishness last week to one of bearishness and weak technical signals this week?  Much of the optimism as of late deals with China.  The US needs China to buy our beans.  Anything that prevents this from happening will cause our grain futures to trade lower to significantly lower.  News surfaced on Tuesday that the Trump administration will proceed with the 25% tariff on $50 B worth of Chinese goods was somewhat of a shock.  This occurred yesterday after all of the progress was made the previous week.  Now, one really wonders what actually happened last week in the Chinese negotiations.  Funds purchased futures due to the expected Chinese soy buying, and now this news is causing them to exit their long positions pushing futures lower in the process.  This selling started the process of trading lower.  In addition, these factors helped motivate the bears on Tuesday:

  • Excellent planting weather has allowed the balance of the corn and bean crop to get planted
  • Corn is now 92% planted vs the 5 year avg of 90%. Bean planting is 77% complete vs 62% on average
  • Corn emergence is 72% vs the avg of 69%. Bean emergence is 47% vs the avg of 32%
  • Corn condition is 79% good / excellent, better than the 72% expected and vs 65% last year when we had record yields. The crop is off to a very good start
  • Weakness spilled over from other markets. The stock market was pounded lower as well as the energy market and even gold traded lower for the day
  • 80% of the Corn Belt is forecasted to receive over 1” rain over the next week
  • Unseasonably warm temps are allowing the crop to advance rapidly, now advancing ahead of the average crop, and the warm soil temps are resulting in wonderful germinations and plant populations, which should correlate to higher yields
  • A new NAFTA deal prior to the elections now seems unlikely. We need to ship Mexico grain and meat
  • The Brazilian trucker strike has literally shut down the country at many different levels
  • How will the Chinese retaliate to the tariffs?
  • How will the markets react to the very negative close of Tuesday? The reaction is the only thing that matters.

 

As you can see, the bearish factors are lining up and growing in numbers.  As I have said many times, once the corn crop gets beyond 50% planted, look out.  We had a tremendous advance last week in grain futures, and this week looks to take most of these advances away.  As I write this, new crop corn for fall delivery into Readfield is $3.76, fall beans are at $9.62, and July wheat is at $4.62.  For all of you who have 75% of your APH already forward contracted for this fall, good job.  For the balance of you, what are you waiting on?  Do you remember last fall harvest?  Weeks upon weeks we struggled to get $3.00 cash corn across the scale and $9.00 beans at harvest?  And now both are 60 – 80 cents higher than this.  Can a weather rally happen?  Sure.  Will it?  Are you willing to risk your farm on it?  Wouldn’t be more prudent to get at least 50% of your APH locked in and taken off the poker table?  You have enough risk in your life.  Here is an opportunity to let some of it go so you can sleep at night.  But it is your call.  Besides, your crop is now planted, and the risk associated with not getting the crop in the ground is now gone, and it is off to a really good start.  The market knows this and is removing the carrot in front of you because it has gotten you to get the crop planted and it is emerged very well.  Its job is now done.

Please remember that many times the grain markets will be supported until the market feels comfortable that enough grain will be produced before selling off.  Many years, we see that after the July 4th holiday, the market gets soft, and trades lower right into harvest.  This year’s crop is off to a very good start.  However, the market still has a weather premium built into futures that won’t totally exit until the crop is much further advanced.  My point is that if you are a die hard bull, and you just cannot sell your crop today, you very likely have until July 4th or so to get caught up on forward sales.  Frankly, I have no problem selling today’s values, even with the pull back from yesterday.  But if you are on the fence, and want more time for a weather market to develop, which may happen, my point is that many times these weather premiums disappear after July 4th.  Thus, give us your targets, we can work them for you, we can adjust them as necessary, but you need to get much more serious about selling once we get to July 4th.

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.

New Arrive Delayed Price Rates have Been Reduced

We have reduced our Delayed Price rates 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 will go into effect.  The new Delayed Price rate is now 60 days FREE, and then 3 cents flat per month thereafter.

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 $4.12, Place Targets at $4.03

New Corn – Dec 18 Corn Futures – Support at $4.12, Resistance at $4.29, Place Targets at $4.21

Cash Beans – July 18 Bean Futures – Support at $9.92, Resistance at $10.50, Place Targets at $10.35

New Beans – Nov 18 Bean Futures – Support at $10.15, Resistance at $10.60, Place Targets at $10.47

New Wheat – July 18 Wheat Futures – Support at $4.86, Resistance at $5.54, Place Targets at $5.28

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

I will be out of the office all next week, and thus, there will be no weekly update next week, FYI.

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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